Retail Sales Up 1.3% – Market Ho-Hum ???

Investor’s first read – Daily edge before the open
DJIA: 17,720
S&P 500:2,064
Nasdaq Comp.:4,737
Russell 2000: 1,108
Friday, May 13, 2016 9:11 a.m.
Wide swings in both directions indicates indecision and the potential for a breakout move when the tug of war between bulls and bears is resolved.
April retail sales reported this morning jumped 1.3 percent versus a paltry 0.3 percent in March, a good sign. Futures trading responded with a move from negative to marginally positive, then slipping back into negative territory.
Stepping way back to look at the big picture, the market has been trading is a wide horizontal band ( DJIA 18,350 – 15,500; S&P 500: 2,130 – 1,850) for two years. It is now trading in the upper end of that band suggesting downside risk unless it breaks out on the upside which in a presidential election year is doubtful.
Easy does it !
The Fed: Reportedly, a disappointing jobs report last Friday with new hires hitting 160,000 vs. expected 200,000, takes a June bump in rates off the table. The Fed
is micromanaging the price level of market too much, allowing a buildup of uncorrected negatives, increasing risk of sharp plunge triggered by unexpected news. Normally the Fed gooses the market in the early stages of a bull market when investors are struggling to believe a recovery is for real. But to do this in the later stages of a bull market, especially one that has risen 200%, is fundamentally pricey, and is vulnerable puts investors at risk – big risk. Assured the Fed is there to prop the market, investors are tempted to go all-in at what may be shortly before a correction begins.
Earnings: Q1 earnings a smidge better than forecast, which may be one reason for Friday’s rebound. The Street is betting on a sharp earnings rebound in Q4 and especially 2017 (+14%). P/Es are above historic norm, so there is no room for disappointment.
Political: Uncertainty mounting.
Seasonal: Eighth year of two-term presidential cycle usually bad starting April/May. Worst six months of year is historically May 1 to November 1.* Phenom referred to as “Sell in May and Go Away.” The two patterns combined spell trouble. Note: Significant rallies have occurred between May and November, testing the validity of this bromide. No indicator is bullet proof.
A big jump in April retail sales should have had a bigger impact on pre-market futures trading. The market should find support at the levels noted below, then attempt to rally. That rally would give us a good read on the health of this market. Failure to gain traction suggests the market is headed lower. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
SUPPORT “today”: DJIA:17,671; S&P 500:2,058; Nasdaq Comp.:4,721. Breaking that, look for DJIA: 17,597; S&P 500: 2,047; Nasdaq Comp.: 4,691.
RESISTANCE “today”: DJIA:17,749; S&P 500:2,074; Nasdaq Comp.:4,771.
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 new DJIA “divisor” (0.14602) to get the DJIA for those levels. This gives me an internal check on the DJIA itself, especially if certain higher priced stocks are distorting the averages.
As of Apr. 28, 2016, a reasonable risk is 17,661 a more extreme risk is 17,374. Near-term upside potential is 18,039.
(I will repeat this regularly to keep readers aware of the potential for an April correction)
The market is tracking a pattern for presidential election years where an administration is in its second term.* The news is bad.
Historically, these markets have declined in Jan./Feb., rallied in March then topped out in early April, plunged in May with brief rallies in June and August and a plunge into October prior to the election.
The S&P 500 is in its 8th year of a bull market, selling at 17.8 X earnings, only 2.5% off its all-time highs, after a 212% bull rise.
Corrections started in spring in each of the last six years, the biggest being 19.8% in 2011, and smallest 2.3% in 2,014.
They started: 2010 (Apr. 26), 2011(May 2), 2012 (May 1), 2013 (May 22), 2014 ( May 13), 2 015 (May 15). The 2014 correction was insignificant, the 2015 more of a trading peak that trended sideways-to-down before the August flash crash.
So far, Q1 earnings are mixed-to-slightly better than projected. The key will be guidance and projections for Q3 and Q4.
 STATUS OF MARKET: Neutral – but vulnerable. Expect volatility
 OPPORTUNITY: RISK: Risk high, Profit taking justified.
 CASH RESERVE: 25% – 45%. Consider 75% now if tolerance for risk is low.
 KEY FACTORS: Outlook for Q1, and 2016 earnings questionable. Fed has market under its spell.
Note: Source of weekly economic calendar and good recap of indicators:
*Stock Trader’s Almanac
George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.