Uncertainty Rules

Investor’s first read – Daily edge before the open
DJIA: 17,674
S&P 500: 2,075
Nasdaq Comp.:4,843
Russell 2000:1,147
Wednesday, June 15, 2016 9:03 a.m.
The FOMC will announce its decision on rates at 2:00 p.m. today, more importantly, Fed Chief Janet Yellen will hold a news conference at 2:30.
No one expects a rate increase even though Yellen hinted at one as recently as May 27. Expect vague references to a rate increase in the future, and conflicting opinions from Fed Governors in weeks to come.
If the Brits decide to stay in the EU on June 23, and the US economy gains traction, a rate increase will be possible in September, but then we’re getting pretty close to Election Day.
Our economic recovery is long in the tooth. At 87 months, it is the 4th longest since World War II. This bull market, which started in March 2009, is now the 2nd longest since 1932, eclipsed only by the 1990 – 1998 bull market which lasted 93 months.
That in itself is no reason to bail out, but is good reason to sit close to the exit.
Blue chips with an attractive yield stand to attract investors seeking some semblance of a return, and that may be a reason there are buyers on weakness.
A yield is nice, but a poorly timed purchase can result in a paper loss, offsetting the benefits of a taxed dividend. Then too, the price of a stock is automatically reduced when a stock goes ex-dividend – no free lunch.
This is an endorsement for the “timing” of purchases, an art that has been upstaged by the Street’s reliance on algos.
The bulls held the line yesterday, but most likely that was in anticipation of a Fed announcement today that it won’t increase rates.
Then too, some traders may be buying in anticipation of an expected positive outcome of Brexit vote on the 23d.
Yesterday’s rebound from a sharp sell off should find resistance in coming days at DJIA 17,776 (S&P 500: 2,087). Beyond that, the market needs some positive news.
At some point the uncertainty surrounding the November elections will send some to the sidelines and cause others to defer purchase.
The burden of proof is on the bulls. Failure to hold the line at these levels paves the way for a correction that will struggle to find a bottom in September/October.
SUPPORT “today”: DJIA:17,330; S&P 500:2,069; Nasdaq Comp.:4,828.
RESISTANCE :today”: DJIA:17,721; S&P 500:2,081; Nasdaq Comp.:.4,858.
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 May 26, 2016, a reasonable risk is 17,656 a more extreme risk is 17,526. Near-term upside potential is 17,963.
(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.
Corrections started in spring in each of the last six years, the biggest being 19.8% in 2011, and smallest 2.3% in 2,014.
They started: 2010 (Apr. 26), 2011(May 2), 2012 (May 1), 2013 (May 22), 2014 ( May 13), 2 015 (May 15). The 2014 correction was insignificant, the 2015 more of a trading peak that trended sideways-to-down before the August flash crash.
So far, Q1 earnings are mixed-to-slightly better than projected. The key will be guidance and projections for Q3 and Q4.
 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: mam.econoday.com.
*Stock Trader’s Almanac
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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