Yellen – More Double Talk ?

Investor’s first read – Daily edge before the open
DJIA: 17,807
S&P 500: 2,099
Nasdaq Comp.4,942:
Russell 2000: 1,164
Monday, June 6, 2016 8:47 a.m.
Friday’s shockingly poor payrolls report pretty much rules out a bump in the federal funds rate June 15.
A better feel for that outcome should be gained when Fed Chief Janet Yellen speaks today at 12:30.
The Street was resigned to a bump in rates before Friday’s report, so today Yellen must do a moonwalk on policy, probably downplay the jobs report and be inconclusive on rates, just enough of a shell game to keep the Street off guard.
The Street buys if it sees the Fed holding on interest rates, and defers purchase or sells if it believes the Fed is going to raise rates.
Knowing the Street will follow its lead, the Fed plays it like a puppeteer intent on micromanaging market swings up and down.
This was justified when the markets and economies were on the verge of a meltdown in 2008 – 2009. I was a big supporter of that.
With the S&P 500 up 200% in 7 years, artificially propping the markets prevents the normal process of adjusting for changing economic news, jobs, slumping auto sales, potential for a recession in 2017, corporate earnings, a divisive election, international economic health, and an overvalued stock market.
The Feds obsession with control stands to set up another one of those free falls like August 2015 and January this year.
If the next free fall is followed by a recession, there will be no bounce back.
This is why many call this “most hated bull market ever,” and why I call it just a phony market.
Yellen can be expected to say all the right things today (12:30) to maintain stability.
That said, the “last rally before a plunge” that started May 19, should persist until the BIG money walks away creating a vacuum.
There is an outside chance that this rally will punch briefly to new 2016 highs (DJIA: 18,167, S&P 500:2,111).
It would only take a 2.14% move by the DJIA and 1.57% move by the S&P 500 to hit new all-time highs. New all-time highs would be accompanied by a lot of press hoopla and a lot of panicky buying. The BIG money does not buy that kind of market. It sells it.
Investors have to let their tolerance for risk be their guide and not let fear or greed get in the way. I think we are getting closer to a big drop. If the BIG money takes a hike, it’s straight down as in January and August. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
SUPPORT “today”: DJIA:17,706; S&P 500:1,988; Nasdaq Comp.:4,915.
RESISTANCE “today”: DJIA:17,871; S&P 500:2,1o7; Nasdaq Comp.:4,959.
Earnings: Q1 earnings were a smidge better than forecast. Initially, it appeared the Street was relieved, but weakness has been creeping in, suggesting something else is calling the shots – Try uncertainty, something the Street never dealt well with. Political: A big part of that uncertainty has to be political.
Oil: Crude oil hit a seven-month high after Goldman Sachs analysts forecast $50 oil later in the year. Meeting in Vienna today could change a lot.
Seasonal: Eighth year of two-term presidential cycle usually bad starting April/May. Worst six months of year is historically May 1 to November 1.* Phenom referred to as “Sell in May and Go Away.” The two patterns combined spell trouble. Note: Significant rallies have occurred between May and November, testing the validity of this bromide. No indicator is bullet proof.
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 May 26, 2016, a reasonable risk is 17,656 a more extreme risk is 17,526. Near-term upside potential is 17,963.
(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.
The S&P 500 is in its 8th year of a bull market, selling at 17.8 X earnings, only 2.5% off its all-time highs, after a 212% bull rise.
Corrections started in spring in each of the last six years, the biggest being 19.8% in 2011, and smallest 2.3% in 2,014.
They started: 2010 (Apr. 26), 2011(May 2), 2012 (May 1), 2013 (May 22), 2014 ( May 13), 2 015 (May 15). The 2014 correction was insignificant, the 2015 more of a trading peak that trended sideways-to-down before the August flash crash.
So far, Q1 earnings are mixed-to-slightly better than projected. The key will be guidance and projections for Q3 and Q4.
 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 Q1, and 2016 earnings questionable. Fed has market under its spell.
Note: Source of weekly economic calendar and good recap of indicators:
*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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