The DJIA was up 172 points Friday on hopes for a quick solution on the fiscal cliff, but down a total of 131 in the last two days on doubts.
That’s the “news whipsaw,” I have been warning about it since mid-September
Both parties have dug their cleats in to do battle in an effort to avert a plunge over the cliff, while defending their ideological interests and coping with pressures from various lobbyists.
Five things to bear in mind.
1) A lot of issues have already been hashed out and agreed on..
2) Much of the heated debate is a “selling” process, an effort to convince respective voters, their representative is fighting for their interest.
3) This will go down to the wire, with Congress called back into session prior to a decision at year-end.
4) Congress may intentionally allow the December 31 deadline to expire pursuant to an immediate agreement.
5) The stock market will be volatile – the “news whipsaw.”
Investor’s first read – an edge before the market opens
DJIA: 12,878.13
S&P 500: 1398.94
Nasdaq Comp.: 2967.79
Russell 2000: 807.74
(Wednesday, November 28, 2012 (9:07a.m.)
The “what if” question will haunt money managers in coming weeks.
Can they afford to be spectators and wait for a resolution and its projected consequences before buying at risk of paying higher prices ?
Or do they assume Congress will agree on a solution before December 31 and buy now and risk a lower market if Congress fails or postpones a solution ?
Odds favor something in between, but less selling and more buying, with extreme volatility in the interim.
TODAY:
Look for a drop today to DJIA 12,765 (S&P 500: 1386). That would be normal, but just be aware that this is a news-sensitive market, a statement by any prominent person can instantly change the direction of the market.
Without big news, a rally today is suspect, especially in the early afternoon.
Also be alert to a frequent tendency of the market to move counter to the day’s prevailing trend between 2:30 and 3:15. In down markets, it can be a head-fake, sucking investors in off the sidelines only to reverse to the downside in the last 45 minutes of trading.
I don’t expect Congress to screw this up. The mid-term elections are only two years away and the voter will have zero tolerance for any pol who is overly unreasonable.
EURO-AREA:
European stocks rose as its finance ministers eased terms on aid for Greece, namely a rate reduction on bailout loans and the suspension of interest payments for a decade, giving it more time to get its house in order. The move cleared the way for Greece to receive its 34.4 billion-euro ($44.7 bn) loan installment in December. Now that’s kicking a can down the road.
ECONOMIC ALERT:
At some point, certain economic reports will begin to reflect the wrath of Hurricane Sandy, which hit New Jersey on October 29 impacting 24 states as far west as Wisconsin, killing 253 people, and including property damage and business interruption, cost the economy an estimated $65 billion.
I doubt the Street will overlook the distortion when the reports are released in the near future.
FACEBOOK (FB – $26.15): Technically, FB should run into resistance at $27.33. This area represents a longer term resistance than those in the last 3 months, since the stock is rising to an area where it broke down sharply in July. Investors who rode out the drop to $17 are likely to be sellers, happy to get a second chance to sell. Investors who bought in after that plunge may want to clip a profit here. It has defied gravity which has suggested it should be weaker in face of the potential for selling from 773 million shares that recently came out of its IPO lock-up. “Market Watch” recently attributed recent strength to better-than- expected sales and earnings reported October 23 and three brokerage upgrades.
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO because on May 21. I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38. I’ll continue technical coverage for a while to accommodate readers.
ECONOMY: We will get a host of economic reports this week. While the fiscal cliff issue dominates headlines, a firming U.S. economy in face of weakness in the euro-zone economies would be very good news for the stock market.
This week’s reports include:
TUESDAY:
Durable Goods (8:30) – Rose 1.5% in October after a 1.7% gain in September
S&P/Case – Shiller Home Price Ix. (9:00) – Increased 0.3% in September after a 0.8% gain in July. Versus a year ago, the index is up 3.0%
Consumer Confidence (10:00) – Rose in November to 73.7 from 73.1 in October.
WEDNESDAY
New Home Sales (10:00) – Rose 5.7% in September to an annual rate of 389,000 units
THURSDAY:
GDP ( 8:30) – Q3 was up 2.0% vs. a 1.3% in Q2.
Pending Home Sales (10:00) – Rose 0.3% in September after a 2.6% drop in August. Sales are up 14.5% year over year.
Kansas City Fed Mfg Ix (11:00) – dropped to a minus 4 in October from a plus 2 in September
FRIDAY:
Chicago PMI (9:45) – Rose 0.2 percentage points in October to 49.9.
RECENT POSTS:
Nov 7 DJIA 13,245 “Game Time ! Fiscal Cliff Next”
Nov 8 DJIA 12.932 “Choppy Down, but Buying Opportunity Coming”
Nov 9 DJIA 12,811 “Trader’s Buy, but…..”
Nov 12 DJIA 12,815 “Cool It !”
Nov 13 DJIA 12,815 “Beware of News Whipsaw”
Nov 14 DJIA 12,756 “Cliff Hanger – News Whipsaw to Roil Markets”
Nov 15 DJIA 12,570 “Traders: Lock and Load”
Nov 16 DJIA 12,542 “Classic Selling Climax Shaping Up”
Nov 19 DJIA 12,588 “Framework for Fiscal Cliff This Week ? Careful”
Nov 20 DJIA 12,795 “Beware of News Whipsaw”
Nov 26 DJIA 13,009 “Market Cannot Afford a Disappointment on Fiscal Cliff”
Nov 27 DJIA 12,976 “Market Rising Into Resistance”
George Brooks
“Investor’s first read – an edge before the open”
[email protected]
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The writer of Investor’s first read, George Brooks, is not 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. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.
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