The Spike !

Investor’s first read Daily edge before the open

DJIA:  16,510
S&P 500:  1,966
Nasdaq  Comp.;4,828
Russell 2000:   1,161

Tuesday:  Sept. 22,  2015   9:13 a.m.

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  TODAY:

     Quad Witching Friday and the day after are behind us and our stock market and those abroad are being tested.  What happens in coming days may decide if  the decline that started August 18 kicks off  a bear market, or just an ugly correction.

     Generally, a 20% decline in the stock market comprises a bear market. August’s flash crash (Aug. 18 – Aug. 24) dropped the DJIA 16.2%, the S&P 500: 12.5% and Nasdaq Comp. 17.9% (intraday).

      The difference between an ugly correction and a bear market is what news hits it when it is trying to turn back up.  Since the Aug. 24 low, the markets have been trying to sustain a rebound. That hit a wall last Thursday when the Fed announced it WAS NOT going to increase rates. That’s ironic, since the Street has always greeted a decision not to raise rates with buying.

       The morning before the Fed’s announcement, I urged readers to “raise cash” if the Fed opted out of an increase (SEE below). After a sharp rally that afternoon, the market sold off  with the help of Quad Witching Friday’s future’s/options expire.

      Yesterday, I headlined, “ Spike Down If Rally Fails.”

      Today we are getting a spike down in face of  tumbling commodities prices abroad and fears that China’s economy is tanking.

      The price chart of the Stoxx Europe 600 is a green stick fracture on the verge of a full fracture.

      This is not a pretty picture, since it won’t take much more downside in U.S. markets to  trace out the same dire picture.

       I am still holding to my forecast for a September/October bottom, in spite of my Aug. 24, “Trader’s Buy” before the open,  the day the flash crash ended. 

       I am open to the possibility that was the bottom, that another bottom can be made above those extreme levels.

SUPPORT today: DJIA: 16,118; S&P 500:1,938; Nasdaq Comp.:4,761

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THE FED – Why they blew it !

      The Fed’s decision not to initiate a rate increase at its September FOMC meeting now gives the Street the impression that when it does the economy is really heating up and additional rate increases are not far behind.  That will jolt the Street into heading for the exits.

      The Fed  wanted to ease the economy and markets into the rate increase process, but overstayed its zero-rate policy.

     There always will be reasons for caution, there will never be a “best” time.  If the economy cannot handle a minor increase in rates, we have bigger problems than anyone realizes.

      I do not believe that is the case, but the Street may see it differently when the Fed acts.

      Until now, I expected a rate increase to be accompanied by a brief but sharp sell off, followed by a BIG rally.  Odds of that are fading.

      The Street has  shuffled along behind the Fed on its decisions starting with “taper, or no taper” now with “Will it, or won’t it” on interest rates.

      The Street needs new benchmarks.  Going into a Presidential Election Year, the likelihood of an increase in interest rates lessens. The sooner the Street begins to focus on other factors, such as earnings ( a year out)  and valuations, the better everyone will be served itself included.

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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” (0.149677) 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 18, 2015,  a reasonable risk is 16,288; a more extreme risk is 15,814. Near-term upside potential is 16,548.  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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