Rally After Bounce This Week Must Be Robust

Investor’s first read Daily edge before the open

DJIA: 17,568
S&P 500: 2,079
Nasdaq  Comp.: 5,088
Russell 2000: 1,225

Monday,  July 27, 2015   8:49 a.m.

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TODAY :

      More downside as market probes for a level where enough buyers enter to absorb selling. Basic stuff  – supply/demand !

      Friday, I said any rally must be robust or it is suspicious. Two pathetic rally  attempts failed and stocks closed lower.

      Rallies can tell us a lot about the balance or lack of it between buyers and sellers. There must be persistent buying to give it credibility.

      The market should attempt to rally from lower levels today or by Wednesday. That will be one of the most critical rally attempts this year, because unlike the dozen that preceded it this year, it could fail and set the stage for an ugly correction lasting into the fall.

      The difference between a moderate 3% – 4% correction and a much bigger one of 6% – 12% is if unexpected bad news hits the market as it is making that turn up. 

     The Chinese market is getting hammered, but that is after a big bounce. The Fed’s FOMC meets this week with its minutes announced Wednesday (2:00 p.m.).  With no Yellen press conference following, I doubt anything important will come out of that. Meeting.

      Based on my technical analysis of each of the 30 Dow industrials the current upside for the Dow is lower, as well as support levels (see below).

      Traders can look for buying opportunities today and this week, but bail if a rally is unimpressive. 

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RESISTANCE today starts at DJIA:17,596 ;  S&P 500: 2,081 ; Nasdaq Comp.:5,096

SUPPORT today: DJIA:17,396; S&P 500: 2.063; Nasdaq Comp.: 5,039  .

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NOTE: Support and resistance levels are where I expect the intraday prices of the DJIA, S&P 500 and Nasdaq Comp. to reverse or close. Buyers should be cautious when a resistance level is reached but consider buying when support levels are reached. Sellers should consider taking action when resistance levels are reached and defer selling when support levels are reached. These levels are picked daily and based on my application of technical analysis.
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  • STATUS OF MARKET: Market is in correction mode after sharp run up where it hit a wall.  For the market to hold on to its positive mode, this correction must find buyers a smidge below current levels (see :support” above)  Then too, any rally from here must be robust. No room for rally failures.
  • OPPORTUNITY: Volatility has set in and overhead supply is building
  • RISK: Above average with news sensitive market.
  • CASH RESERVE: 25%
  • KEY FACTORS:  Fed decision on rates; strength of economic rebound; Outlook for Q3/Q4 earnings; technical underpinnings weakening
  • CONCLUSION:  Big week for economic reports plus FOMC meeting and a report (no press conference) at 2:00 Wednesday.
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SUMMARY  (No change)

     The biggest factor here is the U.S. economy.  Will it rebound from its reported Q1 slump, which most likely  was distorted by weather, oil prices, the impact of a strong US dollar, even seasonality ?

     Recession does not look like a real risk, so much as a “pause” in the economy.

      FactSet projects a year/year decline of 4.5% for Q2 this year, or a 2.1% drop in Q2 alone. The forward 12-month P/E ratio for the S&P 500 is 16.5, above the 5-year average of 13.9 and 10-year average of 14.1.  There are disappointments, including Materials, Energy, Industrials, Telecom, Healthcare, Tech and Utilities, according to FactSet research (www.factset.com)    

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THE FED;\

      FOMC meeting this week with a report (no press conference) on Wednesday at 2:00 pm.c

      The guessing game continues – Will the Fed bump interest rates up in September, or later ?

      Obviously, their decision will key on the strength of the U.S. economy where housing is taking the lead and now consumer expectations are soaring.

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My Technical Analysis of the 30 DJIA Companies

 On occasion, I technically analyze each of the 30 DJIA stocks  for a reasonable risk, a more extreme risk, and an upside potential over the near-term. I add the results of each, then divide by the DJIA “divisor” (0.1498588) to get the DJIA for those levels.
     As of  July 24,  a reasonable risk is 117,364; a more extreme risk is 16,936 The upside potential is has dropped with the market’s inability to follow through last week and is now 18,025.

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KEY EXTERNAL FACTORS: 

-Stock market bubble – China
Q2 earnings for some companies will suffer from U.S. dollar’s strength and plunge in oil prices.
-Market still keyed on the Fed and it’s first bump up in interest rates, which with a slight softening in recent economic reports looks like it may happen later rather than sooner.
Recent strength in employment and housing industry shifting concern from a weakening in the U.S. economy to enough strength to prompt an early bump up in interest rates.

-Greece:  I DON’T  THINK GREECE WILL BE IN THE EURO A YEAR FROM NOW

Note: Source of economic data

For a weekly economic calendar and good recap of  indicators, go to mam.econoday.com.

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George Brooks
Investor’s first read
A Game-On Analysis, LLC publication

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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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