U.S. Dollar’s Direction Now Calling the Shots ?

Investor’s first read – Daily edge before the open
DJIA:17,481
S&P 500:2,040
Nasdaq Comp.:4,774
Russell 2000: 1,091
Friday: March 19, 2016 9:04 a.m.
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Note: Yes, there is a correlation right now between the two, i.e. U.S. dollar down and S&P 500 up (vice-versa), but historically the correlation is inconsistent.
ECONOMIC REPORTS
This is a big week for reports on the economy. Today – Thursday: Jobless Claims, Philly Fed Business Outlook (8:30), JOLTS and Leading Indicators (10:00); Friday: Consumer Sentiment (10:00).
The FED
As expected, the Fed did not bump rates Wednesday, and indicated 2016 would involve two bumps instead of the originally planned four. It was the latter that caused the market to rally in late trading, since the Fed’s flip-flop triggered a drop in the U.S. dollar, ergo jump in commodity and stock prices.
The Fed meets again on April 26-27 and June 14-15 (no May meeting); July 26-27, September 20-21, November 1-2, December 13-14.
Any bump in interest rates would be accompanied by a press conference which takes April, July, and November off the table. If a meeting is scheduled for any of these dates, it would be a tipoff to a bump in rates.
Then too, how reluctant will the Fed be to bump interest rates ahead of the November 8 election day ? If the Fed is going to bump rates, it will likely be in June and December.
Once again, the Fed has muddied a muddy picture. This was a year the Fed planned 4 increases in rates, now it says to expect two. What does this mean ? The economy is suddenly weaker than expected ? Or, don’t they know what to expect, which is a bit scary.
Note: Fed speakers Friday: Dudley (9:00), Rosengren (11:00), and Bullard (3:00) Note: Bullard tends to be a “market mover !” (and I think he enjoys the role).

THE U.S. DOLLAR (USD)
The ICE U.S. dollar index vs. a basket of 6 major currencies (symbol: DXY) plunged 1.04% to 94.7560 Thursday after the Fed opted to ease off raising interest rates this year (two rather than four).
which now appears to be the “drummer’ that oil prices and blue chip stocks are marching to.
Priced in U.S. dollars, crude oil and commodities rise when the dollar falls and vice versa. A weak dollar makes U.S. goods more attractive in foreign markets and can positively impact U.S. company earnings going forward.

EARNINGS ( Who cares ? No one – yet !)
Briefing.com’s Patrick J. O’Hare called attention to a little known (appreciated) projection by S&P Capital I.Q. for 2016 earnings. S&P now projects earnings for S&P 500 this year to grow 1.7% vs. its January target of plus 7.4% . Q1 earnings are now projected to be down 6.8% from January’s projection of plus 1.2%. Q2 are projected at minus 2.0%.
HOWEVER, as noted above, these projections may be revised back up due to the weakening U.S. dollar.
If this is the case, the S&P 500, just 5.2% off its all-time high, is vulnerable to a serious correction.
So, the stock market and oil and other commodities priced in dollars is really marching to the U.S. dollar’s drumbeat, whereas the rise in oil prices has been a proxy for the dollar, getting credit for the strength in the stock market.
By opting out of a rate increase this month, the Fed sent a signal to the investment community that it wants a weaker dollar to offset the potential for a weakening economy.
TODAY:
The market has momentum. For one, rising prices are encouraging investors to jump in with both feet. For another, A change in Fed policy adds fuel to the fire. Both have pushed stock prices further than I ever expected. It is early in a highly contentious election year, any sudden change in the U.S. dollar, oil prices and economy can take the market down, probably starting in April/May. Under these conditions a healthy cash reserve is warranted.
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SUPPORT ‘today”: DJIA:17,364; S&P 500:2,028; Nasdaq Comp.:4,746.
RESISTANCE : “today”: DJIA:17,551; S&P 500:2,051; Nasdaq Comp.:4,796.
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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 March 11, 2016, a reasonable risk is 17,073 a more extreme risk is 16,970. Near-term upside potential is 17,586
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 STATUS OF MARKET: Neutral – but vulnerable. Expect volatility
 OPPORTUNITY: RISK: Risk high, Profit taking justified.
 CASH RESERVE: 25% – 45%. Consider 75% now
 KEY FACTORS: Outlook for Q1, and 2016 earnings questionable.
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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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