Trader’s Sell Into Strength

Investor’s first read – Daily edge before the open
DJIA: 17,694
S&P 500: 2,070
Nasdaq Comp.: 4,779
Russell 2000: 1,131
Thursday, June 30, 2016 8:57 a.m.
– that Brexit will be reversed by parliament, or ignored by a new prime minister. The referendum is not legally binding, and reportedly, a lot of Brits regret voting to leave, including Boris Johnson, the biggest proponent of exit.
-that the EU will move to address Britain’s EU gripes like the immigration issue.
-fallout won’t be as bad as feared, since Britain will still be part of the European economy, doing business will be more complicated.
-the EU has survived crises before like the fiscal crisis in 2009 – 2010 when Italy. Greece, Portugal, Spain, and Ireland were on the ropes and needed help.
-a Fed-fix: talk is already circulating that the Fed won’t raise interest rates until 2018.
-Fed jawboning: a army of Fed officials (with credentials) will be dispatched to allay fears of U.S. fallout, the return to QE if necessary – whatever it takes to run the market back up in time for the next crisis.
Brexit upstaged all other issues that comprise market valuation, and will do so for some time. Q3 and Q4 earnings will have to be addressed, as well as the direction of the U.S. economy.
And what about the November election – remember ? That could dwarf Brexit as November closes in.
And what about a rumor that other nations will consider an “exit.” It would only take an unfounded rumor to trash stocks again.
The ongoing pattern has been when markets take a nasty hit, they recover quickly regardless of the reason for the break in the first place.
The markets have now recouped two thirds of the Brexit loss, a two-day 5.6% crunch, and are now ready for a test of the June 27 low of DJIA 17,063 (S&P 500: 1,991) ?
Whether the Tuesday/Wednesday snapback was bargain hunting, institutional investors averaging out positions accumulated at higher levels, or short covering will be decided today and tomorrow.
Based on all factors, technical, fundamental, international, and economic, this market is over valued. Both the bull market and economic recovery are historically up in years. A stronger U.S. dollar stands to adversely impact Q3 and Q4 S&P 500 earnings, which the Street was counting on to justify these prices.
The Street will be following St. Louis Fed’s James Bullard at 2 o’clock today.
Reportedly, Bullard has a “nearly unequaled ability to move markets,” so his comments can’t be taken lightly.
The brexiting of global markets has created the potential for serious upheaval, so I expect Bullard to emphasize all the things the Fed can do to prop the market up, namely to forgo any interest rate increases until 2018.
That would press the market higher, setting it up for the next crunch.
SUPPORT “today”: DJIA:17,548; S&P 500:2,051; Nasdaq Comp.:4,741.
RESISTANCE “today” DJIA:17,767; S&P 500:2,077; Nasdaq Comp.:4,793 .
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 June 24, 2016, a reasonable risk is 17,285 a more extreme risk is 16,778. Near-term upside potential is 17,698.
(I will repeat this regularly to keep readers aware of the potential for an April correction)
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 Q2, and 2016 earnings questionable. Fed has market under its spell.
Note: Source of weekly economic calendar and good recap of indicators:
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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