Street Says “No Way” to My Concern for Risk

Investor’s first readDaily edge before the open

DJIA:  17,141
S&P 500: 2,023
Nasdaq  Comp:4,870
Russell 2000: 1,162

Friday:  Oct. 16, 2015   9:09 a.m.

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      In recent days, I have been highly concerned that the stock market was vulnerable to an unexpected decline, that  a normal correction that started Tuesday would be extended by new adverse news at a time the market was ready for a rebound, raising the chances of another leg down.

      Yesterday’s across-the-board surge says I was wrong.  

       I am still concerned and for good reasons, but the Street doesn’t see it that way.

      The Street has once again demonstrated its positive/negative position on the market  is  primarily based on whether the Fed will or won’t raise interest rates in the near future. This has been the drumbeat the Street has marched to for years.

        Yesterday’s Wall Street Journal concluded a raise this year was unlikely, and the Street responded with buying.

        The flip side of that would be if the Fed itself indicates it may bump rates in December in which case the market will take a nasty hit.

       There are other issues it should be factoring into their buy/sell decisions, namely, are stocks are overvalued in face of softness in the economy and corporate earnings here and abroad, as well as the dysfunction in our government and international tensions.

       There was a point when the Fed could have raised rates a wee bit, and the adverse impact on the stock market would have been brief and be followed by a strong rebound. The Fed could have spaced out subsequent increases to ease the impact.

       The Street’s computers are programmed to buy when it is perceived  that a rise in rates won’t happen anytime soon,  The risk here is, these computers will be locked in sell mode  when the Fed does raise rates, even though the U.S. economy should  be able to grow with rates at higher levels.

      The Street has other yardsticks for measuring value, it simply isn’t using them.

This will have a very bad ending, though I have no idea when.

      I suggested a 45% cash reserve in face of the risk of a  decline that may still happen. At this point, it is a question of one’s comfort level and tolerance for risk.

.     Yes, it’s all about the Fed, little else counts – until suddenly, it does.

TODAY:

      Having recouped two-thirds of the market’s late August loss, the market will encounter some overhead supply, sellers who were upset by the flash crash plunge and are happy to lighten up. Then too, there were those who used that plunge to buy and they may be taking profits.  There is still room for the market to move higher before hitting serious resistance.  We’ll see.

        Yesterday’s surge was a spontaneous reaction to renewed optimism that the Fed won’t bump rates before year-end. The market will move higher, if the Street really believes that.

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SUPPORT today:  DJIA: 17,036; S&P 500:2,011 ; Nasdaq Comp.:4,838

RESISTANCE today: DJIA: 17,198; S&P 500:2,031; Nasdaq Comp.:4,886

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NOTE:  There is no FOMC meeting scheduled for November, and no press conference scheduled for October. If a press conference is suddenly scheduled for October, it will be a tip off to an announcement of a rate increase, likewise  for a meeting/press conference is scheduled for November.     >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 

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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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  October 14, 2015,  a reasonable risk is 16,793 a more extreme risk is 16,527. Near-term upside potential is 17,137. 
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  • STATUS OF MARKET: Bullish but “at risk” of  a bear market.
  • OPPORTUNITY: RISK: Above average with news sensitive market.
  • CASH RESERVE: 45%
  • KEY FACTORS:  Fed decision on rates; strength of economic rebound; Outlook for Q3/Q4 earnings; technical underpinnings weakening
  • CONCLUSION:  Encouraged by the prospect the Fed won’t raise interest rates this year due to softness in the economy, the stock market has rebounded from a support level established after the August 24 “flash crash.” It is now beginning to probe into an area from which it broke down in August where the upside should be more challenging.

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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 ( New edition should be out – get it !)

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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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