Use Rally to Take Some Profits

Investor’s first read – Daily edge before the open
S&P 500:2,163
Nasdaq Comp.:5,295
Russell 2000: 1,245
Thursday, September 22, 2016 6:36 a.m.
NOTE: There will be no post on Friday, this post released too early to review any unexpected news just before the open
When will Wall Street’s computers recognize the November elections are important and the outcome uncertain ?
When will Wall Street’s computers recognize the Fed’s policy of ease is limited, that other factors must be considered in arriving market valuation ?
-The uncertainty created by a dead heat in the race for the presidency
-Q3 earnings reports in October, which are expected to mark the sixth straight quarterly decline for the S&P 500.
-a downward revision of 2017’s S&P 500 earnings, currently expected to increase 13.4%.
-if the Street suddenly realizes Fed doesn’t have an exit strategy, never did.
Week’s Economic Calendar
Today: Jobless Claims and Chicago Fed Activity (8:30); FHFA House Prices (9:00 a.m.); Existing Home Sales, Leading Indicators (10:00 a.m.),
Friday: PMI Mfg. (9:45 a.m.), Atlanta Fed Business (10:00).
Also Friday: Regional Fed Presidents Panel (12:00 p.m.).
As expected, the Fed didn’t raise rates. At this time, there is no meeting planned for October, which takes us to November 2, six days before the election.
I cannot fathom a rate increase several days before the elections, which takes us to December. It is possible, the Street will now turn to reality and abandon this ridiculous 100% addiction to Fed policy. There are other time-tested measures of value.
This election will be close, including Senate and House seats. The result could have enormous ramifications – huge.
This market is historically overpriced and especially in light of the fact we don’t know what will happen in November, or the possibility that
projections for earnings in 2017 will be downgraded,
At some point, maybe not for months, the Street will come to the conclusion the Fed has created an asset bubble driven by its policy overstay, where investors incur increased risk in search of a return.
Yesterday, I headlined “Big technical Day – Bull/Bear Showdown,” and the bulls ran the table.
Phew ! No sweat, no worry about Fed policy until December. Yeah, Right !
Technically, we had a positive breakout yesterday, which took the Nasdaq Comp. to new highs, and positioned the DJIA and S&P 500 to follow suit.
It looks like this surge is a good opportunity to nail down good profits, raise some cash, just in case the unexpected happens, even though the Street thinks Christmas has come early.
. Wednesday, the Fed indicated among other things that, “market-based measures of inflation compensation remain low.” I feel better already !
SUPPORT “today”: DJIA:18,226; S&P 500:2,155; Nasdaq Comp.:5,271
RESISTANCE “today”: DJIA:18,401;S&P 500:2,174; Nasdaq Comp.:5,316
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 September 16, 2016, a reasonable risk is 18,011 a more extreme risk is 17,908 Near-term upside potential is 18,435.
(So far this is not holding up)
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 Q3, and 2016 earnings questionable with strong U.S. dollar. Forecasts for 2017 still for a gain in S&P 500 earnings of 13.4%. It has been there for months in spite of deteriorating earnings this year. Any downward revision could impact the market significantly.
Note: Source of weekly economic calendar and good recap of indicators:
* (Excellent pre-market read)
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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