Yellen’s “New Normal” Fed’s New Micromanagement Tool ?

Investor’s first read – Daily edge before the open
DJIA: 17,773
S&P 500: 2,077
Nasdaq Comp.:4,844
Russell 2000: 1,148
Friday, June 17, 2016 9:03 a.m.
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Fed Chief Janet Yellen made special reference to a “new normal” Wednesday in her press conference following the FOMC minutes, explaining that rates may be depressed by, “factors that are not going to be rapidly disappearing, but will be part of the new normal.”
As I suspected, the Street took that as a green light to buy.
For years, the Street has responded to the prospect of an increase in interest rates by the Fed, buying when it appeared the Fed was holding firm, selling when rumors floated that a hike was possible.
In fact, the Street has been so obsessed with the Fed, it has rooted for bad news over good news, since it was assurance the Fed wouldn’t raise rates.
If that is the case, the Street will do what it has done for years – buy without regard for any other considerations – over valuation of stocks, economies here and abroad, the election, and any global hotspot that raises its ugly head.
Make sense ? No, but it is what it is, and bad will be good until bad really gets bad, then duck !
The Fed feels the need to head off any selling in stocks that might arise from the Brits opting out of the EU, as well as any negative pressures that may arise like Q2 earnings, the election, and an economy that has been showing signs of tiring.
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.
Brexit
For now, Brexit is center stage with a stay or leave vote scheduled to take 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.
TODAY
Yesterday, I headlined “Yellen: New Normal – “Bullish ? ” because I thought Yellen was trying to head off a further sell off in stocks, as the market heads into choppy waters, first Brexit, then Q2 earnings, the possibility of more evidence of weakness in the economy and the uncertainty and negativity of campaigning leading up to the November election.
I did not see any major reference to new normal in the financial coverage yesterday or today ! Usually, they parse every word.
Whether she is successful in heading off any further downside will be evident in coming months.
What’s important is, it may not work this time, and that’s good reason for caution.
Today is Quadruple Witching Friday where index options, index futures, stock options and stock futures expire on the same day, an event that hits four times a year with the potential to be disruptive to the market.
Yesterday’s rebound was a sign that buyers are still ready to pounce on any market weakness. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
SUPPORT “today”: DJIA:17,648; S&P 500:2,067; Nasdaq Comp.:4,814.
RESISTANCE: “today” DJIA: 17,801; S&P 500:2,084; Nasdaq Comp.: 4,861.
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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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 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.
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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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