Radar Screen: Cock Roaches and Fully Priced Stocks 2016

Commentary, News

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At the beginning of each quarter in 2015 the pain and blood-letting set in.  Each quarter began with price expansion to discount the upcoming reduced earnings that were trumpeted and stocks went down.  Then came the promise of $126 earnings per share for yearend (S&P 500 for 2015 😉 stocks went up on hope.  This routine continued for all of 2015, but the $126.94 earnings are now promised for the end of 2016.  It should be noted that analysts mostly over-shoot the actual results.
Two weeks ago the S&P 500 became coiled.  It tried to get back to the highs and couldn’t hold value.  The weekly range was narrow.  Stocks were priced fully on hope.  New headlines/worries set in.  RSI, the Relative Strength Index was approximately 70.  We closed the week and the RSI was near 43.  This means stocks began being valued lower.
Radar understands this is very technical.  To make this as easy as possible to read and to make good timely decisions requires two things.  First, the process of the market needs to be observed and understood.  Secondly, you have to have a strategy to help manage the decision-making.
Last week, after the coiling of the S&P500, Radar advised selling Declining Value Area Highs, Modes and VWAPS.  Radar doesn’t know in advance whether the Headline news will be good or bad.  It simply observes earnings, expectations and Value.  Scheduled news/data and Headline events are part of the walk.  The thought was, earnings season was approaching and the seemingly likelihood of fully-priced stocks needing to discount reduced expectations.  If you throw in more reduced earnings/global growth, China, North Korea and some uncertainty/fear you get a very disappointing week for stocks.
Where do we go from here?  The selling pain and capitulation that results in a base camp being established would appear to need more pain in the shorter term.  Many people Radar looks to for opinions/data, are looking at the 1865 level on the S&P Index.  But alas, earnings season hasn’t occurred yet.
 
Beginning this week, a flood of earnings will be released.  Forward guidance will show itself.  Perhaps more selling and time spent digesting reality will establish a base and the hoped for earnings $126.94 will still materialize.  Extended range and a coiling process are likely needed for the markets to make a rebound. 
The last time we came down into this area, near the 1865’s, Value became “more,” fair and we got a rebound.  If earnings and guidance are reduced even further, then 1826’s still may not be low enough; perhaps 1780’s?  Radar believes 1850/1860’s may do the job, if we see beats of reduced expectations!
For Traders: Radar still recommends selling Declining Developing Value Highs, Modes and VWAPS until a base can be built. 
For Longer Term Investors: This is not a fun time.  Stocks have sold off approximately 10%.  We are in correction mode.  Build some cash along the way, stay invested, but still raise some cash.  One day, the cash will become more useful. 
Just Observing 
Radar didn’t know a week in advance what the news was going to produce, nor the unfurling of the future; as Headline events take place.  It is the reason the objective is not to call tops and bottoms, but observation points.  This is where Developing Value comes in.  Developing Value is the acappella of the markets.  It is the developing of the unfurling of the attitude of investors.  It is the Casino Math of the marketplace.  It is the final price at the end of the week when Radar walks its dog, Radar.  It is the time when the noise stops; investors, for all reasons, have voted by buying and selling and a price is achieved.  It is around that price where Market Structure is developing or has developed.


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