Selling Climax – Tuesday “Trader’s” Buy

Investor’s first read – Daily edge before the open
S&P 500: 1,921
Nasdaq Comp: 4,615:
Russell 2000: 1,025
Friday: Jan. 15, 2016 8:41 a.m.
FLASH: Tuesday “TRADER’S BUY” after 796-point plunge DJIA
Yesterday I warned, “There is a chance we get a rally today, especially with the Fed’s James Bullard speaking at 8:15 today. Don’t buy his rally.
In response to Bullard’s speech yesterday, the market rallied with the DJIA closing up 227 points.
As I warned, pre-open trading indicates the market will drop sharply at the open, raising the likelihood investors jumping in on Bullard’s comments will be looking at losses on yesterday’s purchases.
In his speech, Bullard said the crunch in oil prices has diminished inflation expectations, which could force the Fed to rethink the four quarter-point rate hikes expected this year.
It’s bad enough unsavory types manipulate stocks and the stock market, but the Federal Reserve should be held to a higher standard.
According to the forecasting firm Microeconomic Advisors, next to Fed Chief Janet Yellen, Bullard’s speeches are the most effective in moving financial markets.
Okay, we understand the Fed is feeling heat for its belated decision to raise rates, and is concerned with January’s free fall in stock prices, but it can be injurious to investor interest to step in and interfere with the normal flow of stock prices.
Here’s why. Bullard’s timely comments at 8:15 Thursday morning, 75 minutes before the open, reversed Wednesday’s DJIA 364-point plunge leading to a sharp rally, which undoubtedly drew investors in to the market.
IF Bullard’s comments stopped the plunge in stock prices and enabled the market to recoup January’s 10% loss, then investors are well served.
But pre-open futures trading indicate the market will open on the downside today. The Fed and Bullard are responsible for sucking investors into the market prematurely, causing them to incur losses on top of the losses they have already suffered, and a great disservice has been performed.
The market is best allowed to seek a level that discounts negatives and uncertainties, without attempts by the Fed to micro-manage its trend.
I was supportive of the Fed throughout much of this bull market. While it helped prevent a global meltdown in 2008-2009, it must step back and let the market find its comfort level.
Corporate earnings will rise to the surface in 2016 as the “decider”. The flow of Q4 earnings started with Alcoa’s (AA) report yesterday.
S&P 500 earnings for 2015 will drop some 5.5% (ex-energy – flat). The Street is looking for some 7% growth this year. Projections were for growth of 8% last year and ended with zilch for the year, though the market held up well considering.
Stock prices won’t hold up as well if revisions start to plunge again this year. Expect a bear market if they do.
While I have been expecting January to be a downer since early December and the year to be rough, I expect several buying junctures during the year, but at lower prices.
This market is probing for a level that discounts anxieties. Institutions must find some of these lower prices attractive. Expect rallies from time to time some triggered by news, some by high-level comments and some just “technical,” a sudden shift in the balance/imbalance of buyers and sellers.
I see a possibility of the DJIA getting below 15,000 (S&P: 1,750)
SUPPORT “today”: DJIA:15,901; S&P 500:1,866 ; Nasdaq Comp.:4,593
RESISTANCE ‘today”: DJIA:16,448 ; S&P 500:1,929; Nasdaq Comp.:4.481
OIL : Bounced yesterday – just a bear market rally. Expect a selling climax within two months
I have been writing that 2016 is the year to buy oils.
For weeks, I have alerted readers to expect oil stocks to make a bottom in 2016, but have not seen the panic conditions that would signal capitulation. I am looking for a selling climax that depresses this group enough to attract the BIG money. With some help from the weakness in the stock market, and continued outpouring of gloom, a panic may occur, a high-volume, one-day spike down that closes on the upside.
However, just one word about production cuts by a well-placed official and the bottom “is in.”
The Saudi’s are playing a dangerous game. Too many big hitters getting hurt. Pressure from within or the outside will force them to trigger a price rebound, just like they triggered a plunge.
Talk of $20 oil has been around for weeks pumped by the likes of Goldman Sachs, RBS and Morgan Stanley. International Monetary Fund’s chief, Christine Lagarde expects oil to stay low for a “sustained period.”
Now investment bank, Standard Chartered, is talking $10 oil, not seen since the big global crunch – 2009.
Keep it up, guys and girls, and you’ll create a full-scale PANIC !
Panic prices selected oil stocks: Exxon (XOM): 67; Chevron (CVX): 74: Market sector oil service ETF (OIH): 21; SPDR S&P O&G ETF (XOP): 24; Vanguard energy ETF (VDE): 69; Energy select SPDR ETF (XLE): 50. These are “technical” projections only and subject to change as conditions in the oil industry and stock market unfold. These prices are 12% – 16% below the current market and may never be hit. Under panic conditions, the prices at a turn are only hit momentarily. Orders must be placed below the market in advance to catch the lows. Obviously, this is only for investors who can afford the risk.
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.
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 January 7, 2016, a reasonable risk is 15,901 a more extreme risk is 15,621. Near-term upside potential is 16,698
 STATUS OF MARKET: Bearish – buying opportunity in mini-crash scenario
 OPPORTUNITY: RISK: Risk high, but opportunity for traders at lower levels.
 CASH RESERVE: 25% – 45% depends on tolerance for risk.
 KEY FACTORS: Fear taking hold. Concern for the number and extent of additional bumps in interest rates by the Fed; strength of economic rebound; Outlook for Q3/Q4 earnings; Stimulus Europe/China a catalyst !!
 CONCLUSION: Bear market (20% drop S&P 500) likely
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Note: Source of economic data
For a weekly economic calendar and good recap of indicators, go to
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

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