While the market has given ground four out of the last five days, the Street appears to believe the U.S. government will come up with a solution to our debt woes without serious consequences.
All along I have believed the White House and Congress would strike the framework of a deal at the last minute on December 31, that if they allowed us to exceed the deadline that it would be by design to let the “no-tax increase Norquist members of Congress” off the hook. With taxes automatically increasing via sequestration, they could then vote to decrease taxes with the exception of the top 2%, better than tax increases for everyone.
That would leave the heavy lifting on spending cuts to the newly elected Congress.
Two things concern me.
One, that an announcement of a “deal” would trigger an emotionally charged rally sucking a lot of investors in at sharply higher prices, only to see a plunge in stock prices immediately afterward as reality set in about the consequences of hard decisions that had to be made in 2013.
Two, there is the tendency for post-election years to be the worst of the four election cycle years.* Administrations and Congress have often used the post-election year to get unpopular issues off their desks ahead of the mid-term and presidential election.
That said, odds favor 2013 will be bumpy, unless ideological differences can be set aside to deal with issues in a bipartisan way, in which case 2013 could be the exception to the rule.
I cannot see that happening.
S&P 500: 1,419.83
Nasdaq Comp.: 2,990.15
Russell 2000: 838.89
Thursday, December 27, 2012 (9:00 a.m.)
Bear market in 2013?
I think the first 3 to 4 months will be volatile and down, possibly as much as 15%. A lot depends on whether the economic recovery can gain traction in face of budget cuts and whether international economies can emerge from their slump. That is anyone’s guess this far in advance.
Obviously, this market is driven by news that we are, or aren’t, going over the cliff. Shortly, the debt ceiling will share headlines with the cliff, as Congress plays its brinkmanship game. Look for a mixed open as the Street awaits word from Congress which is returning to work today. The overall pattern of is weak with another leg down likely without some encouragement out of Washington.
The DJIA needs a move across 13, 220 (S&P 500: 1,433 to turn neutral.
APPLE (AAPL: $512.99)
Apple is flirting with a break below support at $510. If that fails to hold, it will test the December 17 low of $501.23. Breaking that paves the way for a possible plunge to $445 – $465, which is a real stretch. A move above $556 improves the pattern.
If a 27% drop does not attract aggressive buyers at this level with AAPL selling at 11.5 times trailing 12 months earnings, AAPL will go lower.
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB – $26.51):
Unable to break out above resistance at $28.35 and under pressure from weakness in the market during the last three days, FB is now probing for support. It found some at $26.20 Monday and Tuesday, but volume was light due to the holidays, so that level is suspect. Risk here is $24.50 – $25.50.
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: While the fiscal cliff hogs the spotlight, any sudden weakness in the economy would give Congress and the President second thoughts about sequester and its adverse impact on the economy. 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.
Jobless Claims (8:30)
New Home Sales (10:00)
Consumer Confidence (10:00)
Pending Home Sales (10:00)
“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.