The Quiet Before the Storm ?

Investor’s first read – Daily edge before the open
S&P 500: 2,161
Nasdaq Comp.:5,300
Russell 2000: 1,245
Tuesday, October 4, 2016 9:05 a.m.
-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 13.1%. Oil industry earnings have been crushed over the last two years, punishing the S&P 500 earnings as a group. But, based on $55 WTI oil price projections, the oil industry stands to give back to the overall earnings for the 500, generating a 13.1% gain in 2017. We’ll see.
-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..
Reportedly, three-quarters of UK CEOs surveyed by KPMG are considering relocating HQs due to Brexit. The British pound has been getting pounded.
Motor vehicle sales bounced back in September, reversing August’s stall. The August PMI Mfg. Index slipped (Sept. bounce expected), September ISM beat projections, and Construction Spending for single family homes slipped, but multi-family improved.
The most important economic reports this week will be the ADP Employment Report Wednesday at 8:15 a.m. and the Employment Situation Report Friday at 8:30.
The Street will key on the latter in an effort to get a read on whether the Fed may bump rates on November 2 (no meeting this month).
We are now bearing down on the Election Day. So far, the Street is not concerned.
We are also approaching the best six month period for owning stocks (November 1 to May 1).* This suggests a buying opportunity, especially if stocks take a hit in coming weeks.
We don’t know how concerned the Street is about earnings this year and next, since the only thing the Street seems to care about is Fed policy, which unfortunately has had little positive effect on the economy in recent years.
The market has had a lot of reasons to go down and hasn’t. However, relative to earnings, it is rich. Maybe we just have to get the election behind us. In the meantime, volatility will rule.
Even so, just about the time investors are lulled into indifference, something big happens to run stock prices sharply in one direction or the other. I am bored. This range-bound stuff is getting old – taken ho-hum to new levels – ugh ! Ah yes, Brooksie, careful what you wish for !
SUPPORT “today”: DJIA:18,167;S&P 500:2,151; Nasdaq Comp.:5,262
RESISTANCE “today”: DJIA:18,341; S&P 500:2,171; NASDAQ COMP.:5,318.
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.
(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.
 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.
Note: Source of weekly economic calendar and good recap of indicators:
*Stock Trader’s Almanac
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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