The Last Hurrah ? Or a Springboard ?

Investor’s first read – Daily edge before the open
DJIA:18,261
S&P 500:2,164
Nasdaq Comp.:5,305
Russell 2000: 1,254
Monday, September 26, 2016 9:07 a.m.
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WORD-OF-THE-DAY LOOKUP ASSIGNMENT: “Confirmation bias.”
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WHAT COULD HURT THE MARKET
-The uncertainty created by a dead heat in the race for the presidency
-Q3 earnings reports in October, which are expected to mark the sixth straight quarterly decline for the S&P 500.
-a downward revision of 2017’s S&P 500 earnings, currently expected to increase 13.4%.
-if the Street suddenly realizes Fed doesn’t have an exit strategy, never did.
-a recession in Europe. Numbers starting to stink. Markit flash Eurozone PMI at 20-mo. Low Sept; Germany PMI service sector slowest 16 mo..
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TODAY
Jitters about the presidential debates tonight is contributing to weakness at the open.
Thursday’s post, “Use Rally to Take Some Profits,” was timely, as the major market averages spiked up prior to a sell off Friday. The Nasdaq even posted its second straight new all-time high before giving ground.
On the surface, Thursday looked like a bet-the-ranch day. The Fed opted out of a rate increase and there may not be one until December, though I see some speculation about November 2, six days before the election (unlikely).
For the more active investor, it helps to step back and read your emotions. Did Thursday morning look like a sure bet for buying ? Can it be that easy ? If it seems so, re-think it.
Nothing “sure” about a decision today with the debates tonight. Much to my surprise, uncertainty about the election has had little impact on the market to-date, which just reflects a single-focus market – 98% Fed policy. With Fed credibility hitting new lows, that may change, and it may not be pretty.
As I have warned, on numerous occasions, corrections in our markets are becoming lightning fast, striking without warning, and without giving investors a chance to nail down profits and raise cash.
Much of this behavior is attributed to the Street’s algos, which respond to similar triggers, unlike days in the past when a money manager’s gut told him/her to ease toward the exit.
We saw this in August 2015 and Jan/Feb this year with breathtaking free-falls.
Watch your back. This has been a phony, over-priced market for many months, even years. It can become more over-priced, but is it worth rolling the dice ? A cash reserve of 25% is prudent. Depending on the tolerance for risk – 40%.
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SUPPORT “today”: DJIA:18,147;S&P 500:2,147; Nasdaq Comp.:5,259
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NEW PROJECTION:
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 September 16, 2016, a reasonable risk is 18,011 a more extreme risk is 17,908 Near-term upside potential is 18,435.
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ELECTION YEAR PATTERN BEARISH AFTER MARCH
(So far this is not holding up)
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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 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 Q3, and 2016 earnings questionable with strong U.S. dollar. Forecasts for 2017 still for a gain in S&P 500 earnings of 13.4%. It has been there for months in spite of deteriorating earnings this year. Any downward revision could impact the market significantly.
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Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
*Bloomberg.com (Excellent pre-market read)
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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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