Technical Rally Possible – Risky !

Investor’s first read – Daily edge before the open
DJIA: 16,906
S&P 500: 1,990
Nasdaq Comp:4,835
Russell 2000: 1,094
Thursday: Jan. 7, 2016 8:58 a.m.
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Selling climax – OIL stocks possible (see below)
If institutions were seriously bullish, they would have been aggressively scooping up a host of issues that got hammered this week.
The market is now seeking a level that attracts enough buyers to counter increased selling that will be triggered by this scary start to 2016.
TODAY:
Once again, selling in the stock-index futures before the market opens indicate a severe drop in the market when trading begins at 9:30.
A test of the August/September lows (DJIA 15,370; S&P 500: 1,870; Nasdaq Comp.:4,292) is in the process.
Fear is beginning to mount, a signal that a technical rally can occur at any time as it often does in a market decline. These rallies can be dangerous because they are short-lived and suck a lot of investors in only to turn right around and plunge to new lows.
Looking out a couple months, I see the likelihood of a two-leg decline, the first leg rebounding in Jan./Feb. from the August lows and the second leg down breaking below DJIA 15,000 (S&P 500: 1,750) bottoming out is March.
I compiled a list of potential lows for this down cycle for each of the 30 DJIA stocks, converted those back into the DJIA and got 14,600.
THE FED
Oh, another alert: Don’t be surprised if the Fed trots out a few of its “spokes-persons” to stem the carnage. In fact, EXPECT IT ! Re-assuring commentary would trigger a sharp, temporary rally. As I see it, all the Fed can say is they don’t expect another increase in rates for some time, rather than the 3-4 rate increases the Street expects.
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SUPPORT “today”: DJIA:16,521; S&P 500:1,951; Nasdaq Comp:4,738.
RESISTANCE ‘today”: DJIA:16,752 ; S&P 500:1,971; Nasdaq Comp.:4,801.
This assumes a technical rally after a low posted this morning.
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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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OIL : Watch for huge Selling Climax (SOON !)
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.”
Developments in the Mid-East like the rift between Saudi Arabia, Bahrain, Sudan and the UAE and Iran may stabilize oil prices heading off a climactic washout of oil company stock prices.
The Saudi’s are playing a dangerous game. Too many big hitters getting hurt. Pressure from within our the outside will force them to trigger a price rebound, just like they triggered a plunge.
Whether oil stocks will get hit further depends on Mid-East conflict and this groups prices hitting a level institutions with a long-term horizon believe they are a bargain and step in.
Panic prices selected oil stocks: Exxon (XOM): 67; Chevron (CHV): 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.

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ELECTION YEAR MARKETS
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.
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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 January 6, 2016, a reasonable risk is 17,000 a more extreme risk is 16,776. Near-term upside potential is 17,1 46.
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 STATUS OF MARKET: Bullish but “at risk” of a major correction in January.
 OPPORTUNITY: RISK: January plunge possible.
 CASH RESERVE: 25% – 45% depends on tolerance for risk.
 KEY FACTORS: 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: Fed bump in interest rates now official. While Fed has assured the Street additional bumps will be modest, doubts by some will have an impact.
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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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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

2 Replies to “Technical Rally Possible – Risky !”

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