Selling Climax in Energy Stocks Coming

Investor’s first read – Daily edge before the open
DJIA:17,495
S&P 500: 2,041
Nasdaq Comp:5,002
Russell 2000: 1,135
Friday: Dec. 18, 2015 8:56 a.m.
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Now that the Fed decision on interest rates is official, institutions have stocks to sell and stocks to buy based on that decision something they couldn’t do before the announcement.
Without an immediate concern for what the Fed will do next, the Street will have to focus on the areas of the economy that are weak and those that are strong to gain a feel for what to expect next year. Housing is strong, manufacturing is weak. I am not sure any forecasts of corporate earnings can be trusted, so we must assume valuations are a bit high until earnings gain traction after a flat year.
Ugliness and negativism will dominate 2016 as candidates for the presidency joust for control. Terrorism concerns will add to an uncertain investment environment.
All this suggests there will be opportunities, though timing will be critical.
TODAY
The market didn’t sell off after the Fed announcement Wednesday as I expected, but it did Thursday.
While the Street was relieved that the “will they, or won’t they” circus is behind us, they obviously had stocks to sell.
This market action is typical of December, as institutions realign portfolios.
I have been expecting a year-end rally of sorts, one that would carry into January where I expect a major correction. Should the market “front-run such a correction by plunging in December, January won’t be as big a loser.
Today is Quadruple Witching Friday when index futures, index options, stock options and stock futures expire on the same day. The event has the potential to disrupt trading.
THIS IS CLASSIC YEAR-END STUFF. Some of this selling and buying would not be taking place if the Fed had postponed its decision. Expect choppiness, but I do think odds are good for buyers to gain the upper hand before December 31 and into the first week of January.
This year has been brutal for money managers. The S&P 500 is down 2.1% for the year, 674 hedge funds have been forced to close for lack of performance.
While I see a high risk for a January correction, I think the swings in prices will be fewer the result being better opportunities for investors with patience and timely buys and sells.
WATCH ENERGY STOCKS FOR A MONSTER SELLING CLIMAX.
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SUPPORT “today”: DJIA:17,371; S&P 500:2,026; Nasdaq Comp.:4,957
RESISTANCE “today”:DJIA:17,567; S&P 500:2,053; Nasdaq Comp.:5,026
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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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OIL (Doubt we have seen lows – depends a lot on the US dollar)
The energy sector is down 20% year-to-date, forecasts are for lower prices and no rebound. I can see a selling climax in this sector at lower levels, but the ingredients are there. The sector will bottom out well before any news of stabilization. Beware of false rallies, one-day affairs that look like the turn, but yield to another leg down.
Right now some traders may be tempted to catch the falling knife. There will come a point when no one in hell would even think of buying anything to do with oil, that’s when they are a buy.
Hey, it’s coming !
We are seeing a lot of bad press on oil – $30, low $20s. The big names are probing levels not seen in 5 years, and before that 2005. An institution with a 5 – 10 – 15 year horizon has no reason not to be buying, so they will be in there ahead of the ultimate low.
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ELECTION YEAR MARKETS
Pre-presidential election years have a record of being the best of the four-year election cycle with presidential election years running a close second. But the eighth year of a two-term presidency is the exception with the S&P 500 losing an average of 10.9% going back to 1901.*
This supports my expectation of a correction in January setting the precedent of a volatile year for stocks in 2016.
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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” (0.149677) 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 December 11, 2015, a reasonable risk is 17,023 a more extreme risk is 16,643. Near-term upside potential is 17,611.
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 STATUS OF MARKET: Bullish but “at risk” of a major correction in January.
 OPPORTUNITY: RISK: Risk increases with higher market, but light on the Street is GREEN in spite of negatives. January plunge possible.
 CASH RESERVE: 25% – 45% depends on tolerance for risk.
 KEY FACTORS: Fed decision on rates; strength of economic rebound; Outlook for Q3/Q4 earnings; Stimulus Europe/China a catalyst !!
 CONCLUSION: Fed bump in interest rates now official.
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Note: Source of economic data
For a weekly economic calendar and good recap of indicators, go to mam.econoday.com.
*Stock Trader’s Almanac
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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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