Today’s Charts a Mirror Image of Oct. 2015

Investor’s first read – Daily edge before the open
DJIA:16,697
S&P 500: 1,951
Nasdaq Comp.:4,582
Russell 2000: 1,031
Friday: February 26, 2016 8:46 a.m.
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What must be noted here is that the pattern of trading over the last month is a near mirror image of the rebound last October from the big sell off in August. If today’s market mirrors the October 2015 rebound, this market stands to recoup all it lost in January.
The bulls were there in force again yesterday, pushing the market out above the February highs (DJIA:16,485; S&P 500: 1,947).
Under normal conditions, this breakout has the potential of a big follow through.
But, January’s plunge was more than the occasional “cleansing” of nervous investors and uncommitted buyers. We had that last October.
January was a response to serious concerns about a host of issues, including deflation, oil, economies here and abroad, the election, and earnings.
The Street is expecting Q1 and Q2 earnings to be downers, but expects Q3 and Q4 to rebound. Precise estimates vary too much to trust at this time. Obviously, upward revisions in earnings would launch a surge in the market, To the contrary, downward revisions would trigger a slide in prices and bear market. Expect these revisions to become more public in coming weeks.
TODAY:
Worth noting is only two of the DJIA 30 yesterday had volume exceeding average daily volume, Pfizer (PFE) and United Tech (UTX). The other 28 fell far, far short, not a good sign. Volume will have to pick up if the market is to move significantly higher, since selling can be expected to increase as the market moves into serious overhead supply.
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RESISTANCE : “today”: DJIA:16,893; S&P 500:1,971 ; Nasdaq Comp.:4,636
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EARNINGS
Corporate earnings will rise to the surface in 2016 as the “decider”. The flow of Q4 earnings started with Alcoa’s (AA) report yesterday.
S&P 500 earnings for 2015 will drop some 5.5% (ex-energy – flat). The Street is looking for some 7% growth this year. As of Friday’s close, that works out to a P/E of 14.9 vs a 10-year average of 14.2. Projections were for growth of 8% last year and ended with zilch for the year, though the market held up well considering.
Stock prices won’t hold up as well if revisions start to plunge again this year. Expect a bear market if they do.
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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 February 22, 2016, a reasonable risk is 16,243 a more extreme risk is 16,007. Near-term upside potential is 16,720
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 STATUS OF MARKET: Bearish – but trying to turn. Expect volatility
 OPPORTUNITY: RISK: Risk high, but opportunity for traders at lower levels.
 CASH RESERVE: 25% – 45%. Consider 75% now
 KEY FACTORS: Fear taking hold. Concern for the number and extent of additional bumps in interest rates by the Fed; strength of economic rebound; Outlook for Q1, and 2016 earnings as a whole.
The Street is counting on a big jump in Q3 and Q4.
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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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