Trader’s Buy on Big Crunch Imminent

Investor’s first read – Daily edge before the open
DJIA:16,151
S&P 500: 1,890
Nasdaq Comp: 4,526
Russell 2000: 1,010
Thursday: Jan. 14, 2016 7:41 a.m.
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Out-sized corrections and bear markets don’t need an excuse. Small corrections feed on themselves edging a bit lower at first, then gaining traction as concern for portfolio erosion turns to mounting fears as investors begin to sense the ugliness can get uglier.
No longer are investors rewarded with buying on pullbacks in the market. Hopes for new highs or just a nice bump up in a portfolio are dashed as rallies fail yielding to another down day.
What is happening now has nothing to do with what is known, but the fear of what is unknown. Stock prices are really a matter of opinion at a given time based on a number of assumptions, including earnings, the economy, the Fed, politics, crises here and abroad, expectations.
Sooo much of a bull and bear market is human nature – fear and greed.
With the market down 9.6% in 10 days, fear is taking hold, savaging portfolios and investor confidence as stocks plunge below the “ouch: point – then below the pain point en route to the point where investors simply can’t stand the pummeling anymore and sell out.
This market is going to have to find a comfort level where buyers are willing to step in with enough clout to absorb selling and turn the market back up.
What complicates that is, there is no obvious reason for the sell off, no one thing for the market to get its arm around –eerie !
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. 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.
TODAY:
While I have been expecting January to be a downer since early December and the year to be rough, I expect several buying junctures during the year, but at lower prices.
I don’t see a catalyst that would draw the big money in –YET! Price is always an incentive, so I expect a sharp rally soon, especially if the market takes one of those huge one-day hits (DJIA down 600 – 800 points.
The problem for investors with limited funds is they are too scared to buy at one of those junctures. Again, human nature gets in the way of advice to, “Buy low, sell high”.
There is a chance we get a rally today, especially with the Fed’s James Bullard speaking at 8:15 today. Don’t buy his rally.
Friday and/or Monday may give traders a shot at a quick turn. Institutions could buy “partial” positions in depressed stocks.
I see a possibility of the DJIA getting below 15,000 (S&P: 1,750)
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SUPPORT “today”: DJIA:15,867; S&P 500:1,856 ; Nasdaq Comp.:4,444
RESISTANCE ‘today”: DJIA: 16,265; S&P 500:1,907; Nasdaq Comp.:4,571.
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OIL : Watch for huge Selling Climax (SOON !)
I have been writing that 2016 is the year to buy oils.
For weeks, I have alerted readers to expect oil stocks to make a bottom in 2016, but have not seen the panic conditions that would signal capitulation. I am looking for a selling climax that depresses this group enough to attract the BIG money. With some help from the weakness in the stock market, and continued outpouring of gloom, a panic may occur, a high-volume, one-day spike down that closes on the upside.
However, just one word about production cuts by a well-placed official and the bottom “is in.”
The Saudi’s are playing a dangerous game. Too many big hitters getting hurt. Pressure from within or the outside will force them to trigger a price rebound, just like they triggered a plunge.
Talk of $20 oil has been around for weeks pumped by the likes of Goldman Sachs, RBS and Morgan Stanley. International Monetary Fund’s chief, Christine Lagarde expects oil to stay low for a “sustained period.”
Now investment bank, Standard Chartered, is talking $10 oil, not seen since the big global crunch – 2009.
Keep it up, guys and girls, and you’ll create a full-scale PANIC !

Panic prices selected oil stocks: Exxon (XOM): 67; Chevron (CVX): 74: Market sector oil service ETF (OIH): 21; SPDR S&P O&G ETF (XOP): 24; Vanguard energy ETF (VDE): 69; Energy select SPDR ETF (XLE): 50. These are “technical” projections only and subject to change as conditions in the oil industry and stock market unfold. These prices are 12% – 16% below the current market and may never be hit. Under panic conditions, the prices at a turn are only hit momentarily. Orders must be placed below the market in advance to catch the lows. Obviously, this is only for investors who can afford the risk.
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ELECTION YEAR MARKETS
Pre-presidential election years have a record of being the best of the four-year election cycle with presidential election years running a close second. But the eighth year of a two-term presidency is the exception with the S&P 500 losing an average of 10.9% going back to 1901.*
This supports my expectation of a correction in January setting the precedent of a volatile year for stocks in 2016.
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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 January 7, 2016, a reasonable risk is 15,901 a more extreme risk is 15,621. Near-term upside potential is 16,698
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 STATUS OF MARKET: Bearish – buying opportunity in mini-crash scenario
 OPPORTUNITY: RISK: Risk high, but opportunity for traders at lower levels.
 CASH RESERVE: 25% – 45% depends on tolerance for risk.
 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 Q3/Q4 earnings; Stimulus Europe/China a catalyst !!
 CONCLUSION: Bear market (20% drop S&P 500) likely
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Note: Source of economic data
For a weekly economic calendar and good recap of indicators, go to mam.econoday.com.
*Stock Trader’s Almanac (Get it !)
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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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