Technical Bounce Likely – Traders Only

Investor’s first read – Daily edge before the open
DJIA: 17,399
S&P 500: 2,037
Nasdaq Comp.:
Russell 2000:
Monday, June 27, 2016 9:09 a.m.
I expected the “stay” to win, but warned a “leave” vote would result in a gap down at the open, most likely leading to the slide into October.
I believe this is the beginning of the “plunge” I referred to in my May 25, “Last Rally Before a Plunge” blog.
The ongoing risk now is, will any other country opt to leave the EU ? Just talk of the Netherlands, Italy, Greece etc. would impact prices.
The U.S. dollar was the port in the storm for investors across the globe Friday. The downside of that is a strong dollar will penalize Q2 and Q4 earnings. With the S&P 500 P/E still overpriced, the potential for more downside is great.
Uncertainty is the driving factor here, with heading into the November elections adding to the mess.
The EU is no stranger to crises. It barely survived the sovereign debt crisis in late 2009 and years after when Greece, Portugal, Spain, Ireland, and Cyprus were on the ropes.
In any event, it will take the Brits two years to exit the EU entirely, they can always rejoin if they wish. Rumors will roil stock prices.
Be sure of one thing, the Fed will be out in force to stem the carnage, which is OK in a crisis. Fed Chief Janet Yelles speaks Wednesday at 9:30 a.m. , James Bullard at 2:00 p.m. Thursday, and Loretta Mester Friday at 11:00 a.m..
It did its damage though propping the market at higher levels for months, sucking investors in without regard for obvious risks – shaky economies here and abroad, the Brexit vote, deflationary tendencies, the November election, overvaluation of equities. Most likely the market would have sold at much lower levels before the Brexit vote, based on prevailing negatives.
Propping the market when it’s unreasonable oversold is one thing, doing so when it is over valued is another – shame !
The market will seek a comfort level that discounts known and suspected negatives. Odds favor a bounce as institutions buy after Friday’s crunch.
The potential low and resistance to a bounce is noted below in support and resistance levels below.
Fedspeak will attempt to prop the market – downside risk is significant.
SUPPORT “today”: DJIA:17,186 ; S&P 500:2,009; Nasdaq Comp.:4,649
RESISTANCE “today” DJIA:17,462 ; S&P 500:2,047 ; Nasdaq Comp.:4,731 .
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 June 24, 2016, a reasonable risk is 17,285 a more extreme risk is 16,778. Near-term upside potential is 17,698.
(I will repeat this regularly to keep readers aware of the potential for an April correction)
The market is tracking a pattern for presidential election years where an administration is in its second term.* The news is bad.
Historically, these markets have declined in Jan./Feb., rallied in March then topped out in early April, plunged in May with brief rallies in June and August and a plunge into October prior to the election.
 STATUS OF MARKET: Neutral – but very, very vulnerable. Expect volatility
 OPPORTUNITY: RISK: Risk high, Profit taking justified.
 CASH RESERVE: 45%. Consider 75% now if tolerance for risk is low.
 KEY FACTORS: Outlook for Q2, and 2016 earnings questionable. Fed has market under its spell.
Note: Source of weekly economic calendar and good recap of indicators:
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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