The FED Blew It !! Street Now in Quandary

Investor’s first read Daily edge before the open

DJIA:  16,674
S&P 500:  1,990
Nasdaq  Comp.;4,893
Russell 2000:  

Friday:  Sept. 18,  2015   9:03 a.m.

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  REAL RISK NOW:

      Once again, the Fed has decided to delay an interest rate increase for a number of reasons, including global economic and financial developments and the lack of adequate inflationary pressures (deflation ??).

      The Fed really wants to ease us into higher interest rates starting with a tiny raise, then gradually ramping rates up.

       There is a double headed risk here.  Don’t raise rates, then they can’t be reduced if needed to stimulate the economy later. 

       Worse yet would be, an unexpected surge in global economies and the need to counter it with a sharp jump in rates followed closely by more increases.

       The result would be a vertical freefall in the stock market on the order of  4,000 – 5,000 points in the DJIA.  They blew it yesterday.  The Street could have taken a small increase in stride.  Now the Street is beginning to wonder if anyone has a handle on this, or if  it’s anyone’s guess.

 TODAY:

      Yesterday’s  blog headline here, “Raise Cash on Rally If Fed Doesn’t Raise Rates”    was spot on for the reasons noted above, but also because the Fed decision came two hours before Quad Witching Friday when index futures, index options, stock options and stock futures all expire on the same day.

       Following the Fed’s announcement at 2:00 p.m., the DJIA surged 260 points only to reverse down and close off 65 points.  It will open down another 140+ points today.

       I characterized Friday’s potential market action as “raucous,” for the obvious reasons.  

       Today will feature extreme volatility as traders unwind futures and options positions that they were unable to execute in advance because they didn’t know whether the Fed would increase rates on Thursday after its FOMC meeting.   RESISTANCE today: DJIA:16,752; S&P 500:1,999; Nasdaq Comp.:4,914

SUPPORT today: DJIA:16,416; S&P 500:1,961; Nasdaq Comp.:4,819.

Quad Witching Day – things happen for reasons other than day-to-day considerations.  Monday could be a hummer, as well

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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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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” (0.1498588) 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  September 8, 2015,  a reasonable risk is 15,827; a more extreme risk is 15,713. Near-term upside potential is 16,930.  Note: A drop below DJIA 15,713  would be very bearish.
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NEWS ENVIRONMENT    

        The following news has been  a contributor to recent market weakness, though most of these issues have been with us for weeks/months. 

-Chinese stock markets worst drop since 2007,  currently rebounding

-European stocks on verge of bear market (Germany’s DAX off 20%)

-U.S. stocks recovering from ugly crunch

-Commodities at 16-year low, but oil stabilizing.

-currency meltdown

      NOTE: Some of the Street’s pundits are arguing that this market behavior is unreasonable since the U.S. economy is doing well, if not great. Bear in mind, the stock market has historically been an early warning signal for the beginning of a recession, leading by as little as two months and as much as  13 months.

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  • STATUS OF MARKET: Bullish but in a correction  into the fall.
  • OPPORTUNITY: Volatility has set in, market has rebounded from August’s “flash crash”  and is approaching an area of resistance.
  • RISK: Above average with news sensitive market.
  • CASH RESERVE: 25%
  • KEY FACTORS:  Fed decision on rates; strength of economic rebound; Outlook for Q3/Q4 earnings; technical underpinnings weakening
  • CONCLUSION:  Having broken major support levels, the market is probing for a level that discounts uncertainties and negatives.
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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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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