Volatility to Increase

Investor’s first read – Daily edge before the open
S&P 500: 2,151
Nasdaq Comp.:5,269
Russell 2000: 1,237
Friday, September 30, 2016 9:11 a.m.
-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 13.1%. Oil industry earnings have been crushed over the last two years, punishing the S&P 500 earnings as a group. But, based on $55 WTI oil price projections, the oil industry stands to give back to the overall earnings for the 500, generating a 13.1% gain in 2017. We’ll see.
-if the Street suddenly realizes Fed doesn’t have an exit strategy, never did.
-a recession in Europe. Numbers starting to stink. Markit flash Eurozone PMI at 20-mo. Low Sept; Germany PMI service sector slowest 16 mo..
Reportedly, three-quarters of UK CEOs surveyed by KPMG are considering relocating HQs due to Brexit. The British pound has been getting pounded.
A big part of yesterday’s sudden decline was Deutsche Bank’s woes, but the Fed wasn’t about to cede any impact-turf. Fed’s Patrick Harker sees a December hike, Dennis Lockhart hints it come sooner. Jerome Powell isn’t in a hurry.
Is this helpful ? Wouldn’t it be better if they all refrained from an opinion on rates until the release of FOMC minutes ? Really, a decision will not be known until that point anyhow. They never has an exit strategy which is bad enough. To make matters worse, they feel compelled to micromanage the market. Very, very dangerous !
The market took an ugly hit yesterday, partly due to Deutsche Bank’s woes, as well as to commentary by certain Fed officials about the timing of the next bump in rates.
The Street should know better by now not to take seriously contradictory statements by different members of the Fed, and simply wait for the FOMC’s decision.
Deutsche Bank’s crisis is scary in that it triggers fear of a domino effect among financial institutions, but Europe was in worse crisis in 2008 and survived. Aside from being one of Europe’s most thinly capitalized banks, Deutsche has been threatened by the U.S. Dept. of Justice with a $14 billion fine, stemming from transgressions involving U.S. mortgage backed securities ten years ago.
Two days ago we had a positive pattern shaping up for the major market averages, but the crunch yesterday recycled us to neutral. The market needs a good day to repair yesterday’s damage.
On the negative, the DJIA now needs to hold above 17,990 and the S&P 500 above 2,114. Traders only.
SUPPORT “today”: DJIA:18,063;S&P 500:2,141; Nasdaq Comp.:5,236
RESISTANCE “today”: DJIA:18,263; S&P 500:2,168; NASDAQ COMP.:5,301
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: mam.econoday.com.
*Bloomberg.com (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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