Volatility and Uncertainty – Q1 Earnings

Investor’s first read – Daily edge before the open
S&P 500:2,066
Nasdaq Comp.:4,920
Russell 2000: 1,108
Thursday: April 7, 2016 8:49 a.m.
Q1 earnings have begun to flow and are projected to be down, as are Q2 earnings. It doesn’t get more fundamental than earnings, yet other issues have dominated the attention of the Street so far this year.
April could be the “decider” on whether 2016 is a bear market year, or just a volatile one with big swings up and down as we near the November election.
FactSet Research’s April 1 forecast revised Q1 earnings down to minus 8.5% (-3.7% ex energy) from a plus 0.8% projected in December. Of 121 company’s Q1 guidance, 94 have issued lower estimates. Currently, estimates for 2016 as a whole vary by source, but the trend appears to be downward revision.
(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.
This supports my December forecast of an ugly January, a rough year as a whole, but with several buying opportunities.
THE FED (again)
The minutes from the Federal Open Market Committee (FOMC) meeting were released yesterday at 2:00 p.m., and reflected differences of opinion within the FOMC, but the Street reacted with buying since no bump in interest rates is expected at the April26-27 meeting (no press conference)

The Fed will be there with verbal support in the event the Street gets spooked by Q1 earnings reports which are expected to be down for the 4th straight quarter. Obviously, better than expected earnings would trigger a strong leg up.
Investors cannot get to comfy with Fed micro-management of the stock market in the event pent up negatives over-ride the Feds clout.
There is a danger for the Fed in not letting the market to adjust to negatives as they unfold, postponing until another day when negatives simply over ride Fed hype with an abrupt downdraft like those in August 2015 and January this year
Fed intervention was necessary in 2008/2009 in order to head off a meltdown, but with stock prices at these lofty levels, tampering could set up a false sense of security for investors who have become indifferent to risk.
We are in a saw-toothed, sideways consolidation phase that could last a week or two.
Oil prices soared yesterday in face of a surprise drop in inventories. The Energy Information Administration reported U.S. crude supplies in storage declined 4.9 million barrels in the April 1 week. At 529.9 million barrels, inventories are still historically high for this time of the year.
This industry is highly news-sensitive.
SUPPORT “today”: DJIA: 17,627; S&P 500:2,058; Nasdaq Comp.:4,901.
RESISTANCE “today”: DJIA:17,741; S&P 500:2,069; Nasdaq Comp.:4,928.
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 31, 2016, a reasonable risk is 17,664 a more extreme risk is 16,560. Near-term upside potential is 18,102
Recently it became obvious that the stock market and price of oil were in lockstep with the trend of the U.S. dollar. When the latter went up the market and oil went down and vice-versa.
Many things influence the direction of the stock market and commodities which are priced in dollars, but in the absence of other factors the dollar will have an impact.
For what it’s worth, the Commodities Futures Trading Commission’s (CFTC) data indicates that “bets” that the dollar will strengthen has fallen to the lowest level since July 2014, when the dollar began a 17% run, meaning the pros expect it to drop further.
That would bode well for oil and stocks, but this extreme reading arouses my contrary instincts – how could so many people be right ?
The hedge funds are shorting oil for the first time in two months, according to Bloomberg.com. Seems there is doubt the price freeze agreed to by Saudi Arabia, Russia, Venezuela and Qatar is in ineffective if Iran does not go along. A meeting held in Doha, Qatar on April 17 will shed more light on the future of a global surplus.
The stock market has been getting its marching orders from both the direction of the price of oil and the U.S. dollar.

 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.
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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