Stock Buybacks Driving Rebound in Prices

Investor’s first read – Daily edge before the open
DJIA:17,213
S&P 500:2,022
Nasdaq Comp.:4,748
Russell 2000: 1,087
Monday: March 14, 2016 9:08a.m.
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EARNINGS
At some point oil, the ECB, China, and the Fed will have to give way to Corporate earnings as the Street’s prime focus – and concern.
All these other issues have an impact on investor sentiment, but earnings has a more direct impact on the valuation of stocks.
Briefing.com’s Patrick J. O’Hare called attention to a little known (appreciated) projection by S&P Capital I.Q. for 2016 earnings. S&P now projects earnings for S&P 500 this year to grow 1.7% vs. its January target of plus 7.4% . Q1 earnings are now projected to be down 6.8% from January’s projection of plus 1.2%. Q2 are projected at minus 2.0%.
If this is the case, the S&P 500, just 5.2% off its all-time high, is vulnerable to a serious correction.
OIL
The Street is confronted with a lot of variables this week. The stock market continues to march to oil’s drumbeat.
This week, Bloomberg’s Julian Lee, stresses the reason for the strength in oil prices even while inventories are rising is because traders expect non-OPEC and U.S. production to slide in coming months, reducing inventories, bringing demand into better balance with supplies. Lee dismisses the increase in U.S. inventories in Q1 of 2016 as a seasonal aberration. The Dept. of Energy’s short-term outlook forecasts non-OPEC production will drop by 440,000 barrels per day over 2016. This compares with its January forecast of a drop of 90,000 bpd during 2016.
STOCK “BUYBACKS” FUELING REBOUND IN PRICES
Another gem out of Bloomberg is Lu Wang’s contention that much of the rebound in stock prices over the past month is buybacks of stock by companies. S&P 500 companies are on track to purchase $165 billion worth of stock this quarter, four times the $40 billion being dumped by mutual funds, hedge funds and ETFs.
S&P 500 companies held $900 billion in cash at year-end 2015. Too bad these companies aren’t spending more on plant and equipment and training programs.
Repurchases tend to recede during earnings reporting periods, the next one being April, the month I expect another correction.
TODAY
Watch for moves in oil prices to begin to lose their impact on stock prices. That may happen within the next three weeks. That would signal a change in the Street’s focus to something else, probably earnings.
The FOMC meets this week with an economic report and press conference Wednesday at 2:00 and 2:30 a.m. respectively. The Fed is expected to pass on another bump in rates, but comments by Fed Chief Janet Yellen about additional rate bumps this year may jolt the Street.
Traders should use any strength to feed out a little more stock. Investing should be selective.
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SUPPORT ‘today”: DJIA:17,087; S&P 500:2,006 ; Nasdaq Comp.:4,713 ;
RESISTANCE : “today”: DJIA:17,312; S&P 500:2,033; Nasdaq Comp.:4,776.
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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 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 March 11, 2016, a reasonable risk is 17,073 a more extreme risk is 16,970. Near-term upside potential is 17,586
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 STATUS OF MARKET: Bearish – but trying to turn. Expect volatility
 OPPORTUNITY: RISK: Risk high, but opportunity for traders at lower levels.
 CASH RESERVE: 25% – 45%. Consider 75% now
 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 Q1, and 2016 earnings as a whole.
The Street is counting on a big jump in Q3 and Q4.
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Note: Source of economic data
For a weekly economic calendar and good recap of indicators, go to mam.econoday.com.
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*Stock trader’s Almanac
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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