Testing Important Support Levels

Investor’s first read – Daily edge before the open
DJIA: 17,535
S&P 500:2,046
Nasdaq Comp.:4,717
Russell 2000: 1,102
Monday, May 16, 2016 9:14 a.m.
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TODAY
Since Q1 earnings were released, the market has been drifting lower and is now threatening to break down through some serious technical supports. The lower prices that have ensued should attract buyers in a normal bullish setting.
That may yet happen, but it is beginning to look ugly. Bulls must step in or selling will intensify, triggering a nasty correction.
The DJIA broke minor support Friday, but the S&P 500 and Nasdaq Comp. did not follow suit.
One big buyer appears to have backed off. According to Birinyi Associates, corporate buy backs have dropped sharply. After repurchasing trillions of dollars of their own stock over the last five years, repurchases have slipped 38 percent in the last four months, the biggest decline since 2009 (when they should have been buying !).
SUPPORT “today”: DJIA:17,417; S&P 500:2,033; Nasdaq Comp.:4,685.
RESISTANCE “today”: DJIA:17,558; S&P 500:2.055; Nasdaq Comp.:4,739.
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The Fed: Shortly, the Street will begin to worry about a June bump in interest rates. They won’t get much help from the Fed, which will continue its parade of officials offering reasons why and why not. Thank you very much !
Earnings: Q1 earnings were a smidge better than forecast. Initially, it appeared the Street was relieved, but weakness has been creeping in, suggesting something else is calling the shots – Try uncertainty, something the Street never dealt well with. Political: A big part of that uncertainty has to be political.
Seasonal: Eighth year of two-term presidential cycle usually bad starting April/May. Worst six months of year is historically May 1 to November 1.* Phenom referred to as “Sell in May and Go Away.” The two patterns combined spell trouble. Note: Significant rallies have occurred between May and November, testing the validity of this bromide. No indicator is bullet proof.
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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 Apr. 28, 2016, a reasonable risk is 17,661 a more extreme risk is 17,374. Near-term upside potential is 18,039.
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ELECTION YEAR PATTERN BEARISH AFTER MARCH
(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.
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The S&P 500 is in its 8th year of a bull market, selling at 17.8 X earnings, only 2.5% off its all-time highs, after a 212% bull rise.
Corrections started in spring in each of the last six years, the biggest being 19.8% in 2011, and smallest 2.3% in 2,014.
They started: 2010 (Apr. 26), 2011(May 2), 2012 (May 1), 2013 (May 22), 2014 ( May 13), 2 015 (May 15). The 2014 correction was insignificant, the 2015 more of a trading peak that trended sideways-to-down before the August flash crash.
So far, Q1 earnings are mixed-to-slightly better than projected. The key will be guidance and projections for Q3 and Q4.
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 STATUS OF MARKET: Neutral – but vulnerable. Expect volatility
 OPPORTUNITY: RISK: Risk high, Profit taking justified.
 CASH RESERVE: 25% – 45%. Consider 75% now if tolerance for risk is low.
 KEY FACTORS: Outlook for Q1, and 2016 earnings questionable. Fed has market under its spell.
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Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
*Stock Trader’s Almanac
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George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
Brooks007read@aol.com
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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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