Technical Rally to Encounter Resistance

Investor’s first read – Daily edge before the open
DJIA: 17,140
S&P 500: 2,000
Nasdaq Comp.:4,594
Russell 2000: 1,089
Tuesday, June 28, 2016 9:09 a.m.
Look for the Fed and other central banks to attempt to stabilize and jawbone the markets back up. There will be speculation about a British parliament override of Brexit (unlikely), as well as counter offers by the EU to reduce the impact going forward.
Reportedly, the referendum is not legally binding, but to ignore it would create even more division. Former Prime Minister Cameron will be leaving it up to his successor (Boris Johnson front runner) to execute Article 50 of the Lisbon Treaty to set the wheels of an EU exit in motion.
The market stabilized yesterday after another tumble and is following through with a rally today. Actually, I expected a little more than a dead cat bounce yesterday, but a morning stall was followed by a successful test of that low in the afternoon, as institutions and traders decided a two-day, 5.8% plunge was worth some buying.
I now see us entering the classic whipsaw market where the market will jump and fall in concert with positive and negative news.
The Brexit vote was the catalyst to jolt the market back into reality. Prior to this break, there were enough uncertainties and negatives to warrant a lower valuation of equities, so here you are.
The fallout from the Brexit vote is not known, this is new turf and it’s slippery.
The market has yet to adjust for the November elections, and the fact a stronger U.S. dollar may adversely impact Q3 and Q4 earnings, which the Street hoped would justify a higher market valuation.
We have seen sharp recoveries follow the Aug 2015 and January/February 2016 plunges, and it could happen again. I seriously doubt it with what is known now. This is more than a green stick fracture.
SUPPORT “today”: DJIA:17,213; S&P 500:2,013; Nasdaq Comp.:4,624
These supports are in the event the rally corrects during the day.
RESISTANCE “today” DJIA:17,416; S&P 500: 2,039; Nasdaq Comp.:4,687 .
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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