Short-Term Opportunity Lurks !

Investor’s first read – Daily edge before the open
S&P 500: 2,012
Nasdaq Comp:4,933
Russell 2000: 1,123
Monday: Dec. 14, 2015 8:54 a.m.
Quadruple Witching Friday teams up with the complexities of December this week, as if there wasn’t enough to consider. Q-Witch occurs four times a year (Mar.,June, Sept. and Dec.) and is when index futures, index options, stock options and stock futures expire on the same day. The event has the potential to disrupt trading.
The price of oil continues its slide and is now below 2009 lows. No one, absolutely no one, sees a chance of a rebound (they’re wrong). Ironically, just days before the Fed is expected to bump rates up, the 10-year treasury went down, owing to another round of flight to safety.
Contrarily, junk bonds posted the biggest loss since 2011 as huge gaps between bid and ask opened up. China, the world’s second biggest economy, may let its yuan slip further.
You gotta love this stuff – always something, always a test, angst, short-lived exuberance, emotions yanked one way, then the other, head-fakes, no formula or shop-worn bromide work consistently.
Friday followed script. We had two rally failures and a spike downward with the S&P 500 breaking the November (intraday) lows of 2,019, the DJIA and Nasdaq close behind..
It appeared that the Street had discounted a bump in rates Wednesday, but the jitters are setting in as that event gets closer. This is the first Fed change since 2008, and there will be more to follow.
It’s the “change” in Fed policy, more than a tiny increase in the federal funds rate, that is unnerving. However, if the economy cannot grow in face of a bump off zero, we are heading south in a hurry.
Institutions have been selling, but will re-invest those proceeds, which would give us the year-end rally.
The big question (obvious) is how much lower before a rebound ?
The Street doesn’t know, I may not either. I think you just have to watch the slugfest between sellers and re-investors until one or the other gets an edge. Without new negatives, a temporary bottom should be reached this week. I say temporary, because the December lows may be tested in Jan./Feb. 2016.
There is a good chance we will get a “year-end rally,” and it may be huge, taking the DJIA up beyond 17,750 (S&P 500: 2,085) pulling all sideline sitters in. Given that, or just close to that, the market will top out in during the first week in January 2016 entering a correction of 8% – 14%.
Just be aware that this has a very good chance of happening, so you aren’t blindsided if it does.
Without a sell off at the open, today, we will get a rebound to my “resistance” levels noted below. This would be the re-investors picking up discounted prices.
They will encounter sellers who haven’t totally finished adjusting their portfolios.
That’s where the bugles blow and the turf war begins.
Don’t miss this. Could be a sizzler.
SUPPORT “today”: DJIA:17,033; S&P 500:1,986; Nasdaq Comp.:4,867
RESISTANCE “today”:DJIA:17,431; S&P 500:2,036; Nasdaq Comp.:4,983
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.
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.
I can’t understand why an institution with huge resources and money flowing in quarterly cannot make serious money. NFE ! I think the problem is they don’t see “cash” as an investment. Cash cushions you against losses, more importantly it enables you to capitalize on corrections and depressed situations. The question becomes how low is low ? That’s where averaging a position comes in.
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 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.
 STATUS OF MARKET: Bullish but “at risk” of a correction, especially Fed-based
 OPPORTUNITY: RISK: Risk increases with higher market, but light on the Street is GREEN in spite of negatives.
 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: Suddenly, odds of a December bump up in interest rates has increased dramatically. Over the years, the market has sold off when it appeared that an increase was imminent. It did not do so after the announcement Friday, but did on Monday as the Street began projecting the timing of subsequent rate increases in 2016 – 2017.
Note: Source of economic data
For a weekly economic calendar and good recap of indicators, go to
*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

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