Upside Breakout Needs – News Catalyst

Investor’s first read – Daily edge before the open
DJIA:16,639
S&P 500: 1,948
Nasdaq Comp.: 4,590.:
Russell 2000: 1,037
Monday: February 29, 2016 8:57 a.m.
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Again, I want to note that the pattern of trading over the last two months is a near mirror image of the rebound last October from the big sell off in August.
The August 2015 crunch, 11.4% in five days, was one of those “flash crash” phenoms that occurs when the highly leveraged, quant-driven trading mechanisms gets disjointed.
January’s 12.9% crunch took 14 days and was driven by concern about a host of things – plunging oil prices, earnings, the Fed, economy, Europe, and the election.
A double bottom marked the Aug./Sept. 2015 bottom with a solid rebound to previous highs. The Jan./Feb. bottom has yet to sustain a breakout from its base.
Picking a catalyst for a breakout is challenging. There are enough pockets of strength in the economy to encourage the Fed to bump interest rates at its March 15, FOMC meeting.
The Street is not expecting this. Fed action could trigger a break in the market.
Corporate earnings are expected to grow again in Q3 and Q4. Any downward revision to that expectation would hammer stocks. But it works both ways. Any upside revisions to 2016 earnings would drive stocks up sharply.
At some point, oil’s dominance will yield center stage to other issues, probably the Fed and earnings
TODAY:
The market was unable hold its gain Friday and closed at the lows for the day. My study of the charts of the 30 Dow industrials indicates tough going on the upside but no serious vulnerability on the downside. January’s correction took a lot of fluff out of prices. The bears can hope for a pullback, but need something nasty to drop the blue chips enough to mark a bear market.
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SUPPORT “today”: DJIA:16,486; S&P 500:1,926; Nasdaq Comp. :4,533.
RESISTANCE : “today”: DJIA:16,727; S&P 500:1,957; Nasdaq Comp.:4,596
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EARNINGS
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. As of Friday’s close, that works out to a P/E of 14.9 vs a 10-year average of 14.2. 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.
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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 February 26, 2016, a reasonable risk is 16,484 a more extreme risk is 16,258. Near-term upside potential is 16,840
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 STATUS OF MARKET: Bearish – but trying to turn. Expect volatility
 OPPORTUNITY: RISK: Risk high, but opportunity for traders at lower levels.
 CASH RESERVE: 25% – 45%. Consider 75% now
 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 Q1, and 2016 earnings as a whole.
The Street is counting on a big jump in Q3 and Q4.
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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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