It was a volatile day in the stock market today. In the morning the Dow was down 100, by noon the Dow was up 250 in reaction to the Fed’s continuous low interest rate policy (they are desperately fighting deflation), but by the close, the market was back down 112 points. The NASDAQ was weak, down 1.24%. This kind of activity is reminiscent of a topping process. Last Wednesday, the market was down some 200 points, with the recovery on Thursday and then a disastrous Friday (worried about the weekend). On Monday the market rallied, but could not hold a rally as it was today. Once again, this kind of volatility is reminiscent of a topping process. International markets were mixed with Europe  up 2.5%, London up 2.4% China was down 1.5% the Nikkei was down 2%. Russian stocks rallied some 3% today, but one must remember that the Russian market is down over 50% for the year. Oil continued below $60 a barrel and there were forecasts to see oil below $40 a barrel in January.
So far, earnings forecast for 2015 have remained strong. S&P earnings are foretasted to grow from $117 for 2014, to $127 for 2015. The one cautious note I might add is that the P/E ratio is getting close to 17 times earnings, which was the high reached in 2008 (before the market dropped 50%). Dow Industrial earnings are expected to come in at 15 times earnings for 2015. IBM has the lowest P/E ratio at 9.6 times earnings, with Nike showing the highest P/E ratio at 25 times earnings, with Visa close behind at 24 times earnings. I think that these earnings estimates will be revised downward and are too optimistic, particularly when one considers the effect of earnings on energy companies and the slowing of business in Europe, Japan , China and Russia. In my estimation the US companies will have a tough time fighting a slowing world economy.

All stock market upward cycles end with a surprise. In 2000 it was the dot com bust, in 2008 it was the housing bubble and the market fell 50%. This time it could be deflation, as the surprise. The recent budget compromise allows more risky derivative buying by the banks and larger contributions by the financial industry which will make matters worse. . As interest rates are to rise next year, these derivatives could start another banking crisis with the taxpayers in no position for a bailout this time. All boats will sink. On the one hand consumers are reaping benefits from cheaper prices paid at the pump, but on the other hand, investors are weighing whether falling oil prices are symptomatic of deflation in a lagging global economy. Crude oil fell below $60 a barrel for the  first time in five years. This is normally the time of year when money managers are doing window dressing, as portfolios can meet benchmarks. Window dressing refers to the practice of selling poorly performing stocks in favor of high performing stocks.  For window dressing. the market should be rallying, but it is not.  The Intermediate Trend of the market is questionable and should reveal itself soon and reveal the direction of the Long Term Trend. SEE SUPPORT LEVELS BELOW

 Current Value 12/16/2014 Dow NASDAQ S&P 500
17,068 4,547 1,972
Short Term Down Down Down
Int. Term ? ? ?
Long Term UP UP UP
ForecastedTrend  DJIA NASDAQ S&P 500
Short Term Down Down Down
Int. Term ? ? ?
Long Term Sideways Sideways Sideways
Breakout Points DJIA NASDAQ S&P 500
Short Term Up (Resistance) 17,959 4,810 2,077
Short Term Down (Support) 15,855 4,116 1,820
Int. Term Up (Resistance) 18,062 See Fibonacci Projections above 5,002 See Fibonacci Projections above 2,486 See Fibonacci Projections above
Int. Term Down (Support) 15,356/14,688 3,986/3294 1,560
Long Term Up (Resistance) 18,974 5,132 3,044
Long Term Down Fibonacci Support 50%12,005 62% 10,750 50%2,958

62% 2,555

50%1,390 62% 1,177

Carl M. Birkelbach 12/16/14