Climbing the "Cliff"? Watch Out Below

George Brooks |

Climbing the "Cliff"? Watch Out BelowI have warned of the dangers of chasing a rally that would accompany an announcement of a solution (or framework of such) that would avert a plunge over the fiscal cliff January 1.

So far the market hasn’t been worried and continues to edge up. Odds favor a rally failure and possibly a one-day reversal and a correction down or sideways-to-down when the announcement comes.

Here’s why.
-An agreement at this point cannot include details, so uncertainty will extend into 2013 for the new Congress to debate.
-the stock market has already anticipated an announcement, so one is most likely already discounted in stock prices.
-this allows little room for a shock, such as a plunge over the cliff (very possible, but by design).
-profit taking in leading stocks may intensify in face of the possibility of an increase in the capital gains tax.
-post-election years tend to be downers.* Politicians like to get unpleasant issues off the agenda in time for the mid-term election, even ahead of the next presidential election.

The risk would not be as great if the market declines ahead of an announcement.
DJIA: 13,248.44
S&P 500: 1,427.84
Nasdaq Comp.: 3,022.30
Russell 2000: 834.99
(Wednesday, December 12, 2012 (9:08 a.m.)

Stock prices may get a boost from Fed chief Bernanke’s press conference today and expected plans to stabilize any economic shock resulting from a decision on cliff issues.

Glad to hear they care, but there is only so much they can do, what rules here is uncertainty. In fact, I see a strong possibility the market will top out before year-end and that may happen within days.

My resistance level was penetrated yesterday making the market increasingly top-heavy, but still marching to the “news whipsaw” drummer.
News (or news-expectations) have always been able to trump support and resistance levels.

Before December 31, expect days when you are absolutely sure Congress and the President are a certain to strike a deal (market up). Expect those hopes to then be dashed (market down).

There is a big difference of opinion in terms of fundamentals for Apple (AAPL) at $541.39, and I am only focusing on the “technical” action of its stock here.

Odds favor a spike to $554 today or tomorrow, followed by a pullback to $548 later in the week. The stock is selling at 12 times earnings and down 23 % its high. Unless the Street is expecting a major change in long-term fundamentals, $525 is likely to hold. We should know shortly. More rally failures would be a bad omen

Facebook (FB) - $27.98: . There is definitely overhead supply (resistance) between $27.80 and $27.40. This area represents a longer term resistance than those in the last 3 months, since the stock has risen to an area where it broke down sharply in July. While FB recently broke up through $28 to $29, it slipped back and should have trouble moving up past $28.60. Bear in mind this is December and some institutions want to show FB in their Annual Reports now that it has rebounded from the teens, so there will be some buying. At this level, it may encounter some of the 773 million shares from its IPO“lock-up.”

Today on FB: No change.

It will take a major piece of news and big volume to penetrate resistance, but now that FB is not perceived as a “loser,” owing to its 10-point rebound since mid-November, institutions may not hesitate to show it as a holding in their year-end reports. Buls have the edge.

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.

Note: I am going to list the economic reports but not include the numbers from the last report, since those numbers are often revised and therefore potentially misleading.
I suggest you access the website: www.mam.econoday for details reports on this week’s calendar and an excellent recap (plus graphs) of last week’s reports.
FOMC Meeting announcement (12:30)
Bernanke press conference (2:15)
Jobless Claims (8:30)
Producer Price Ix (8:30)
Retail Sales (8:30)
Business Inventories (10:00)
Consumer Price Ix (8:30)
Industrial Production (9:15)

George Brooks
“Investor’s first read – an edge before the open”

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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of 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:


Symbol Name Price Change % Volume
AAPL Apple Inc. 117.68 0.03 0.03 14,391,091
FB Facebook Inc. 132.90 -0.38 -0.29 6,212,672
NCR NCR Corporation 30.40 -0.52 -1.68 265,583


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