Year-End Rally in The Making

Investor’s first read – Daily edge before the open
DJIA: 17,719
S&P 500: 2,080
Nasdaq Comp:5,108
Russell 2000: 1,198
Tuesday: Dec. 1, 2015 8:49 a.m.
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TODAY
The market rallied back four times from sell offs yesterday but not with conviction before closing down for the day.
So, the Stock Trader’s Almanac’s Thanksgiving pattern of up during the holiday week and down the following Monday held true for the 13th time out of the last 17 years.
This level of resistance at DJIA 18,000 (S&P 2,100) is formidable, and the bulls will be challenged to blow through it. If this week’s economic data is significantly weak, talk of the Fed delaying its bump in interest rates may resurface, giving stocks a shot in the arm.
If the economic news is strong, the market may still move ahead, since the Street seems resigned to an announcement of a bump in rates on Dec.16.
There was just too much month-end selling yesterday, but buyers are out today, so expect a run at near-term resistance starting at DJIA 17,798 ( S&P 500: 2,089; Nasdaq Comp.:5,127). That resistance area was created by month-end selling, so it should not be too formidable.
The Fed will announce its decision about a bump in interest rates on the 16th. The Street may be reluctant to commit too heavily before then. The market could take a hit after the announcement at 2:00 p.m. Wednesday the 16th if the Fed raises rates, but I expect buying by 2:30 and a strong close.
That’s how I see it today, a lot can happen in the interim. I just want to throw that out there FYI.
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SUPPORT “today”: DJIA:17,630; S&P 500:2,069; Nasdaq Comp.:5,080.
The market is starting on the upside so these support levels apply only if the rally fails.
NOTE: Take these support/resistance levels seriously. I frequently hit them or get very close, especially with the S&P, which is less distorted by moves in one or a couple high-priced stocks as with the DJIA.
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Yesterday’s economic data was disappointing with softness in all three reports – Chicago PMI, Pending Home Sales and the Dallas Fed Manufacturing index coming in on the low side.
Today we get the PMI Manufacturing Index (9:45), and at 10:00 the ISM Manufacturing Index, and Construction Spending report. (See mam.econoday.com for details for the week)
The CPI Core index is inching up close to the Fed’s 2.0 pct. trigger but the Core PCE (Fed’s choice) index is lagging. Even so, the Street is expecting the Fed to announce a bump in interest rates Wednesday Dec. 16.
Factory data appears to be stabilizing, though housing has suddenly tapered off.
Key Fed officials will speak this week: Evans today at 12:45 p.m.; Lockhart 8:10 a.m. Williams 11:00, and Fed Chief Yellen 12:25 Wednesday; Mester at 8:30 a.m. and Yellen (again) at 10:00 a.m. Thursday, Harker at 10:15 Friday, Bullard at 3:45 p.m. and Kocherlakota at 4:10 Friday.
Pre-presidential election years have a record of being the best of the four-year election cycle with presidential election years running a close second. But the eighth year of a two-term presidency is the exception with the S&P 500 losing an average of 10.9% going back to 1901.*
This supports my expectation of a correction in January setting the precedent of a volatile year for stocks in 2016.
NOTE: Support and resistance levels are where I expect the intraday prices of the DJIA, S&P 500 and Nasdaq Comp. to reverse or close. Buyers should be cautious when a resistance level is reached but consider buying when support levels are reached. Sellers should consider taking action when resistance levels are reached and defer selling when support levels are reached. These levels are picked daily and based on my application of technical analysis.
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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 DJIA “divisor” (0.149677) 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 November 19, 2015, a reasonable risk is 17,580 a more extreme risk is 17,436. Near-term upside potential is 17,967
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 STATUS OF MARKET: Bullish but “at risk” of a correction, especially Fed-based
 OPPORTUNITY: RISK: Risk increases with higher market, but light on the Street is GREEN in spite of negatives.
 CASH RESERVE: 25% – 45% depends on tolerance for risk.
 KEY FACTORS: Fed decision on rates; strength of economic rebound; Outlook for Q3/Q4 earnings; Stimulus Europe/China a catalyst !!
 CONCLUSION: Suddenly, odds of a December bump up in interest rates has increased dramatically. Over the years, the market has sold off when it appeared that an increase was imminent. It did not do so after the announcement Friday, but did on Monday as the Street began projecting the timing of subsequent rate increases in 2016 – 2017.
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Note: Source of economic data
For a weekly economic calendar and good recap of indicators, go to mam.econoday.com.
*Stock Trader’s Almanac
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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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