Yellen’s “New Normal” – Bullish ?

Investor’s first read – Daily edge before the open
DJIA: 17,640
S&P 500: 2,071
Nasdaq Comp.:4,834
Russell 2000:1,149
Thursday, June 16, 2016 9:08 a.m.
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Admitting Brexit contributed to the Fed’s decision, Fed Chief Janet Yellen added, rates may be depressed by “Factors that are not going to be rapidly disappearing, but will be part of the new normal.”
What ? No more rate increases ? No more angst ahead of FOMC meetings ? That should trigger a stampede of buying.
Maybe not. The message here could be that the Fed does not expect a pick up in the economy any time soon, which means stocks are pricey at these levels.
For now, Brexit is center stage with a stay or leave vote taking place on Thursday, June 23. Polls show the leave vote gaining traction.
A leave vote would have global consequences here and abroad, Yellen said yesterday, and pre-market futures trading this morning suggests fear of that possibility is beginning to impact Wall Street.
The other side of that coin is the possibility that the Brits will stay, in which case we can expect a very sharp rally.
It appears it would take a major resurgence in economic growth to justify an increase in rates at this point.
That can happen, but it is not likely, since the current economic expansion is getting up in years. At 87 months, it is the 4th longest since World War II.
At some point the uncertainty surrounding the November elections will send some to the sidelines and cause others to defer purchase.
TODAY
Down at the open. Rallies before next Thursday’s Brexit vote will be short lived.
The bulls can only hope the Street is heartened by Yellen’s vague assurance not to expect rate increases anytime soon. Otherwise the stock market will drop to a level that discounts uncertainties here and abroad.
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SUPPORT “today”: DJIA:17,476; S&P 500:2,051; Nasdaq Comp.:4,781.
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NEW PROJECTION:
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 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.Support here is being tested.
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ELECTION YEAR PATTERN BEARISH AFTER MARCH
(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.
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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.
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 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 Q2, and 2016 earnings questionable. Fed has market under its spell.
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Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
*Stock Trader’s Almanac
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George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
Brooks007read@aol.com
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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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