Risk Increasing – Bulls “Must” Step In

Investor’s first read Daily edge before the open

DJIA: 17,928
S&P 500: 2,089
Nasdaq  Comp.4,939
Russell 2000:    1,215

Wednesday, May 6, 2015   9:14 a.m.

NOTE:  I will not publish Thursday, Friday, Monday  (Rotator Cuff surgery !)

TODAY: This week’s employment data is calling the shots for now. Today the ADP Employment data for April came in at 169,000 new hires, a weak number. Friday’s Employment Situation data (8:30) will likely confirm the fact this year’s economy is off to a slow start, though distorted by the adverse impact lower oil prices  and a surging U.S. dollar have had on business.

    The ADP number did not adversely impact pre-market trading in futures (yet).

     Failure to sustain a rally today calls for a test of  last week’s lows of DJIA: 17,774; S&P 500: 2,077; Nasdaq Comp.: 4,921. Odds favor more volatility with a sideways consolidation, looking good one day, bad the next.

     RISK: There is an increasing risk of a sharp drop in the DJIA to 17,065; S&P 500: 1,985; Nasdaq Comp.: 4,680.

CONCLUSION:
    The Street is coping with a tradeoff – a rebounding economy and a resulting bump  up in interest rates by the Fed,  or a sagging economy, no bump, but the bad stuff that follows, including lower corporate earnings going forward on top of  stocks that are  “pricey” for those conditions.
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     Last week’s post headlined  that the month of May will be a crossroads where the market will move decidedly up or down, breaking out of the  three month trading range, roughly (DJIA 17,600 – 18,200; S&P 500: 2,040 – 2,120; Nasdaq Comp.: 4,850 – 5,100).

     While Q1 earnings have put a damper on stocks, the Street’s negativity may be overdone.  The quarter looks more like a drop of 0.2 percent, down from 3.1 percent a month ago.

     If the Street sees a robust rebound in earnings, expect an upside breakout.  Otherwise, it looks like the sideways trading range will continue, even trend down over the summer months.

ALERTALERTALERT

     The six months period between Nov. 1 and May 1 has historically been the best six months for the stock market.* The six months between May 1 and Nov. 1 has underperformed. Consistent as this seasonal pattern has been, it must be noted that opportunities to trade against these trends have occurred often.  Analysts and the press will make a lot of noise about this phenom in coming months –  be careful.
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My Technical Analysis of the 30 DJIA Companies:  

On occasion, I technically analyze each of the 30 DJIA stocks  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 April 17, a reasonable risk was 17,687; more extreme risk 17,500; and the upside potential: 18,157.   The DJIA peaked at 18,175 yesterday prior to a selloff that started in early trading.

     NEW ANALYSIS: As of yesterday’s close (Apr. 27) my new calculations are:  Reasonable risk: 17,887; more extreme risk: 17,640; and near-term upside: 18,334 (a new high).

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COMMENTS:
     The quarterly earnings reporting period is being its usual pain in the butt. The biggest detriment to consistent valuations is the Street’s over emphasis on whether a company hits the projections the Street sets which are mostly based on company guidance.  It really shouldn’t matter is a company “misses” or fails to “beat” by enough to pass muster.  Company management shouldn’t be so short-term focused.

   And by the way,  who is wrong with a “miss” – the company or the Street ?

 

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KEY EXTERNAL FACTORS: 

-Stock market bubble – China
-Q1 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.
Concern that the U.S. economy is beginning to slump. This week is mixed.

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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