Yesterday’s plunge was a bit more than I expected but generally spot-on. I don’t know what the Street was thinking on Wednesday when they ran the market up.
Monday’s “Rallies From Here – Suspect,” warned that a break below support at 13,040 (S&P 500: 1403 set the stage for a nasty tumble to DJIA 12,735 (S&P 500: 1376) near-term. We got the downside breakout yesterday.
I am sticking with those risk levels for now, but see the potential for a bounce from 12,855 (S&P 500: 1372) in the interim.
Resistance begins at DJIA 12,987 (S&P 500: 1398).
Breaking that, the DJIA runs into resistance at 13,078 (S&P 500: 1408).
Investor’s first read – an edge before the market opens
DJIA: 12,932.73
S&P 500: 1394.53
Nasdaq Comp.: 2937.28
Russell 2000: 804.52
(Thursday, November 8, 2012 (9:11 a.m.)
Congress will be in a pressure cooker between now and December 31 to address the fiscal cliff, painful automatic spending cuts and tax increases.
As a result, the market will probe for a level that discounts the prospect of a failure to avert the fiscal cliff, which could shove our economy back into a recession.
On top of that, the Street will have to factor in forecasts for an even greater than expected slump in Europe and the likelihood analysts may have to revise downward earnings forecasts for 2013.
Be sure of one thing – the press and pundits will trump up the horrors of the fiscal cliff now that the election is over and a deadline looms less than 8 weeks from now.
This will scare the crap out of investors, but provide several great trading opportunities.
I think The Obama administration and Congress will work it out. The deadline may be delayed pending the workout of tax reform. Congress failed to address the problem last year, but members of both parties have been in discussions this year to find common ground.
Everyone is dressed for the game, it’s time to take the field.
CONCLUSION: While my recent posts have warned readers to be suspicious of rallies (like the one Wednesday), I also alerted readers to be prepared for an excellent buying opportunity, reminding them that November 1 to May 1, marks the “Best Time for Owning Stocks,” a consistently reoccurring pattern.*
I also stated that if Congress gives us a reason to believe it can come together to find a reasonable bipartisan solution to the fiscal cliff – the market is going “NORTH.”
FACEBOOK (FB – $20.47): Fb broke support at $21 and is now at risk of a tumble to $18.75. FB’s ability to move up is complicated by millions of shares coming on the market that could be sold , shares that were in “lock-up” from its IPO. On Monday 234 million shares became eligible for sale, on Nov. 14,777 million shares become eligible and on Dec. 14 another 156 million shares. Yesterday’s volume was 32 million shares.
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, but think my objective here has been accomplished.
George Brooks
*Stock Trader’s Almanac: This is a “must own” publication, loaded with daily, weekly, monthly savvy. It is “the source” for strategies, seasonalities, recurring events, useful stats. Published annually, I have used it every year since 1968. Nothing compares !
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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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