The market is not waiting for an announcement about a framework agreement on the fiscal cliff to begin to decline.
Yes, it will rally briefly when an announcement is made, but then turn down again.
I have warned readers of a correction following an announcement of a solution (most likely partial solution) to the fiscal cliff issue. I also indicated the possibility the correction would start BEFORE an announcement.
The correction has started, the market is headed for some rough sledding between now and March/April – lots of starts and stops.
Post-election years tend to be downers* and 2013 should not be an exception. The pols seek to get unpopular issues off their plates in post-election years to clear the way for the mid-terms and even years approaching the presidential election year.
So, it could get ugly
S&P 500: 1413.58
Nasdaq Comp.: 2971.37
Russell 2000: 823.69
Monday, December 17, 2012 (9:08 a.m.)
Why should investors take precautions and raise cash in face of a prospective decline in the market ?
What investors do not want to do is spend the ensuing rebound recouping what was lost in the preceding decline. If they have cash, they have the chance of reinvesting near the end of the correction and make money on the rebound.
What’s more, who knows what “new” negatives will hit the market when it is ready to rebound from a decline ? New negatives are often the difference between a relatively painless correction and one that hits the “ouch” point.
As I have said repeatedly, I see this debate going until late evening, December 31. There is the possibility of a piecemeal decisions on increased taxes on the so-called top 2%, plus charitable contributions and the “doc” fix, with all else left for the new Congress to debate in 2013. If so, this won’t go until December 31.
The extent of political polarization here is so great, I think it has to go down to the wire.
NOTE: Democratic Whip Steny Hoyer and House Majority Leader Eric Cantor announced that the House will not adjourn the 112th Congress until a credible solution to the fiscal cliff has been found. The House was scheduled to adjourn on December 14.
APPLE (AAPL: $509.79)
Friday, I reasoned that if a 23% drop from its September highs cannot attract more buying than it had by then and with it selling at 12 times earnings, AAPL may have to go lower to attract buyers.
That’s what it is doing, and I think it has further to go, but expect a bounce today in early trading to $521, followed by a spike down to $472 in coming days.
How far down can AAPL go ?
As fear mounts, so will selling and analysts scrambling to revise earnings estimates. If the BIG money likes the future of this one, it should be loading up at these levels. If they aren’t, the big question must be – WHY NOT ?
Technically, I can see a climactic spike down to the $445 – $465 area with a one-day reversal turning it upward. That’s a technical assessment, not based on fundamentals, which the Street is struggling with right now.
FACEBOOK (FB – $26.81): Whether FB got hit by the 156 million post-IPO lock-up shares that became eligible for sale Friday is not known at this point ?
Friday, I noted it had to break $28.35 to run across $29 and a break above $29 paved the way for a move to $30.60. It got stopped at $28.34, then turned down.
I still feel the bulls have the edge, but Friday’s action suggests FB needs to consolidate its one month, 50% surge. Risk here is a drop to $24.68 – $25.30.
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: This is a big week for economic reports. 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.
Empire State Mfg. Svy.(8:30)
Housing Market Ix. (10:00)
Housing Starts (8:30)
Jobless Claims (8:30)
Existing Home Sales (10:00)
Philly Fed Svy (10:00)
FHFA House Price Ix.(10:00)
Leading Indicators (10:00)
Durable Goods Orders (8:30)
Personal Income/Outlays (8:30)
Chicago Fed. Nat’l Activity (8:30)
Consumer Sentiment (9:55)
Kansas City Fed. Mfg. Ix. (11:00)
Dec 6 DJIA 13,034 “Fiscal Cliff Announcement Rally to Be a Fake Out ?”
Dec 7 DJIA 13,074 “Stock Market Rally Risky”
Dec 10 DJIA 13,140 “Has a Resolution to the Cliff Mostly been Discounted ?”
Dec 11 DJIA 13,169 “Sell Into a Fiscal Cliff Deal Rally”
Dec 12 DJIA 13,248 “Climbing the “cliff” ? Look Out Below”
Dec 13 DJIA 13,245 “After the Fiscal Cliff We Have the Debt Ceiling !
Dec 14 DJIA 13,170 “The Bond Bubble Will Burst”
*Stock Trader’s Almanac: The new one is out – get it !
“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.