Will October Madness Strike ?

Investor’s first read – Daily edge before the open
S&P 500: 2,159
Nasdaq Comp.5,316:
Russell 2000: 1,248
Thursday, October 6, 2016 9:05 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.
-October madness ! (defies quantification or reason, but happens !)
There was nothing in yesterday’s economic reports that would give the Fed an excuse to raise rates at its November 2 FOMC meeting. While the ISM Non-Mfg. Index jumped sharply, MBA Mortgage Apps, PMI Services and Factory Orders barely budged. The ADP Employment data was a disappointment at 154,000 jobs added in September, suggesting t\Friday’s Employment Situation Report will follow suit, none of which gives the Fed a reason to bump rates before December.
This market has been unusually lethargic, which is abnormal for October, and especially in light of looming uncertainties like the election and a Fed policy decision.
Be ready for a sudden move. Odds ever so slightly favor down for several weeks prior to a surge. Be aware, we will soon enter the best six months period for owning stocks, November 1 to May 1.*
There would be little risk now if the Street wasn’t so focused on Fed policy. Without that focus, the market would by now have adjusted to the uncertainties of the election, the possibility that 2017 earnings will be downgraded, and the possibility of a recession lurking out there sometime in 2017. Should the focus suddenly switch over from totally Fed to other issues, a sharp move would occur – initially down.
SUPPORT “today”: DJIA:18,148;S&P 500:2,147; Nasdaq Comp.:5,277
RESISTANCE “today”: DJIA:18,354; S&P 500:2,168; NASDAQ COMP.:5330
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.
*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

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