Trader’s Buy ! Risks High

Investor’s first read Daily edge before the open

DJIA: 16,459
S&P 500: 1,970
Nasdaq  Comp.4,706
Russell 2000: 1,156

Monday:  Aug. 24, 2015   9:05 a.m.

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CONCLUSION: 

      Panic !  Suddenly everyone wants out and the exit is too narrow for them to do so without crushing stock prices.

      The news looks like it does at bear market bottoms after a prolonged slump.

-Chinese stock markets worst drop since 2007

-European stocks on verge of bear market (Germany’s DAX off 20%)

-U.S. stocks gapping down

-Commodities at 16-year low.

-currency meltdown

-No one has a clue when the Fed will bump interest rates, including the Fed

-Brent oil below $45, WTI oil below $40

-Quotes on Street: “Wall Street Preps for meltdown.”  “Downturn not over yet”

Does that sound like PANIC ?  or OPPORTUNITY ?

       TODAY: I continue to believe this decline will find its bottom in September/October, but am prepared to change that  to August if prices totally collapse this month.   

       When the dust settles, I expect part of the blame for such a sharp freefall will be computerized trading which confirms my long-held belief, this is all a casino for hot, highly leveraged  money seeking a fraction of a point on huge positions.

      This market acts like the bloodbaths of 1987 and the 2010 “flash crash,” both computer driven.

       Both set up great buying opportunities, because computer algorithmic decisions were inferior to decisions a human brain could make based on unfolding events.

       My point is, much of this plunge may be without merit.

       Expect extreme plunges and rallies as the market searches for a level that discounts a host of uncertainties, mostly global.

       AGAIN, THE DIFFERENCE BETWEEN A OUTRIGHT UGLY CORRECTION AND A BEAR MARKET IS WHAT NEW NEGATIVES HIT IT WHEN IT IS ATTEMPTING TO TURN AROUND AFTER AN 8%-14% PLUNGE.

       Traders can buy the open, but sit close to the exits.  We have passed the “ouch” point” and are headed for the “I can’t stand it anymore” point where just about everyone sells out, thus creating a climactic plunge.

      Human nature will be against anyone who is even thinking of buying. These markets always look like they can go lower.

      The BIG money can move in as stock prices plunge. For investors with limited cash, it is tougher. Mutual funds offer diversification, but got hammered Friday.

      Partial positions offer a chance to buy in with less risk than loading up.   

POSSIBLE SCENARIO:  THE DJIA TO OPEN 600 POINTS LOWER FOLLOWED BY A BOUNCE THEN ANOTHER DROP TO TEST THE OPEN, FOLLOWED BY A   REBOUND TO DJIA 16,440; S&P 500: 1969; NASDAQ COMP 4,690.                          

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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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  • STATUS OF MARKET: Bullish but in a correction  into the fall.
  • OPPORTUNITY: Volatility has set in, market reversed Tuesday after quick plunge and will be rebounding into resistance (again).
  • 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.
  •  

SUMMARY 

     The biggest factor here is the U.S. economy.  Will it rebound from its reported Q1 slump, which most likely  was distorted by weather, oil prices, the impact of a strong US dollar, even seasonality ?     Recession does not look like a real risk, so much as a “pause” in the economy.     

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My TECHNICAL ANALYSIS  of the 30 DJIA Companies:  (As of 8/21).

 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” (0.1498588) 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  August 19,  a reasonable risk is 16,228; a more extreme risk is 15,713. Near-term upside potential is 17,083.

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KEY EXTERNAL FACTORS: 

-Devaluation of the Chinese yuan

-U.S. economy – rebound Q3 and Q4 ?

-Fed increase in interest rates

-Potential armed conflict Korea

-Greece (again)c

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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