Trader's Buy, but Risks Very High

George Brooks |

MondayAugust  4, 2014      9:18 a.m.  BEFORE the OPEN

    Last week’s 3.6% crunch did some technical  damage and rattled some cages on the Street. We should see an attempt to recoup some ground lost early this week, but there will be some sellers along the way.

    The S&P 500 had a 14.6% run since early February before its 1,991 peak on July 24.  A one-third correction would take it down to 1,906, a one-half correction to 1,864.

    Absent new negatives, the risk at this point looks somewhere between the two, or 1,885.

    Using the April 11 to July 24 rise as a base, the risk comes out to about the same number – 1,885.

    A number of outside factors accounted for last week’s plunge – Russia, Israel/Hammas, Argentina, Europe’s economy, and interest rate jitters.

    While we have seen worse negatives, the upside here is limited without some consolidation and churning.

     Bear in mind, minor corrections of 3% to 5% can become an uglier correction if the market gets hit by new negatives at that juncture where a minor correction is beginning to yield to a rebound.

TODAY:

    Yes, the put-call ratio is signaling a buying opportunity, and that be fine for nimble traders.  I have a feeling we are looking at a sideways trading range, quite possibly with a downward bias heading into the fall.  This market cannot handle another major uncertainty/negative without giving more ground.

    Failure of the market to gain traction after 20 minutes of trading today would  suggest another plunge below DJIA 16,400 (S&P 500: 1,914; Nasdaq Comp.: 4,325).

    Resistance todayis DJIA: 16,596; S&P 500: 1,937; Nasdaq Comp.:4,381.

 

Investor’s first readDaily edge before the open

DJIA: 16,493

S&P 500: 1,925

Nasdaq  Comp.:4,352 

Russell 2000:    1,114

THE FED:                               

    We will hear more cautionary  comments from the Fed going forward in an attempt to ease an interest rate hike when its reality hits early next year. The Fed does not want speculative fever to run rampant prior to the rate increase.

     The Fed’s “easing in” policy is bad news for those who want the feeding frenzy to continue unabated, but good news for investors who opt for  a more stable market and an inevitable crunch instead of crash.

     Along the same lines, Dallas Fed  President, Richard W. Fisher recently indicated the economy was getting significantly closer to “liftoff,” suggesting  to me and obviously others, that interest rates may rise sooner than expected.  Based on various projections that could be Q1 or early Q1.

   

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TECHNICAL ANALYSIS of 30 DOW JONES INDUSTRIALS

(UPDATED ANALYSIS:  July 31 AFTER the 312 POINT PLUNGE in the DJIA)

    At key junctures, I technically analyze each of the 30 Dow industrials seeking a reasonable near-term support and a more extreme support leyel, as well as a short-term resistance level. By technically studying the balances of buying and selling in each stock, then converting that data back to the DJIA using the “divisor” (0.1557159) I can get a better reading on the average itself.  The DJIA is a price-weighted average and subject to distortion by higher priced issues.

     After yesterday’s crunch, Iran my analysis based on the July 31 closeand concluded the near-term upside for the DJIA is now 16,912, a  reasonable downside from here is 16,290 and more extended downside risk to 15,960.

    Note: My daily support/resistance  levels are more short-term oriented

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THIS WEEK’s ECONOMIC REPORTS:

    The economic report schedule is heavy this week with a good balance between housing, service, production and employment

      For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.mam.econoday.com. Also included is an explanation of each indicator. If you want to know when the next Employment report or any other key report will be released that info is also there under “event release date.”

MONDAY:

Gallup U.S. Consumer spending Measure (8:30);

TUESDAY:

ICSC Goldman Store Sales (7:45):

PMI Services. Ix. (9:45):

Factory Orders (10:00):

ISM Non- Mfg Ix. (10:00):

Global Composite PMI (11:00):

WEDNESDAY:

MBA Purchase App (7:00):

Int’l Trade (8:30):

THURSDAY:

Jobless Claims (8:30):

Consumer Credit (3:00):

FRIDAY:

Productivity/Costs (8:30);

Wholesale Trade (10:00):

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RECENT POSTS:

July 22   DJIA   17,051  Significance of Yellen’s Warning

July 23   DJIA   17,086  Feeding Frenzy in Low-Priced Stocks Imminent ?

July 24   DJIA   17, 113 Taper’s End Fully Discounted – 2015 Interest Rates Not

July 25   DJIA   17,083  Is Market Action Setting Stage for a Leg Up ?

July 28   DJIA   17,960  Big Week – Economic Reports/Q2 Earnings

July 29   DJIA   16,982  Quite Before the Storm ?

July 30   DJIA   16,912  Market on the Verge of Big Move ?

July 31   DJIA   16,880  Huge Test for Bulls

Aug.  1    DJIA  16,563  False Alarm, or ………

*I use intraday prices

A Game-On Analysis,  LLC publication

George  Brooks

“Investor’s first read – a daily edge before the open”

Brooks007read@aol.com

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 decisions in keeping with their tolerance for risk.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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