Framework for Fiscal Cliff Announcement This Week? Careful!

George Brooks  |

The market held tough Friday, even rallied at the close in face of potential war in the Middle-East.

The strength was due to a comments following a Friday meeting by congressional leaders.
According to Huff Post Politics,, leaders from both parties indicated that a “framework had been put in place to reach a deal, which would involve a mixture of raising tax revenues and pursuing entitlement reforms.”

While it appeared to be overlooked by the press, President Obama hinted in his press conference last week that there would be an announcement this week concerning the fiscal cliff, however he didn’t elaborate.
Today’s strength suggests the Street is buying in anticipation of an announcement this week.

Investor’s first read - an edge before the market opens
DJIA: 12,588.31
S&P 500: 1359.88
Nasdaq Comp.: 2853.13
Russell 2000: 776.29
(Monday, November 19, 2012 (9:11 a.m.)

TODAY: Obviously, the Street expects good news on the fiscal cliff this week or early next. Assuming no disappointments, I see the potential for a rally to extend to DJIA12,757 (S&P 500: 1375) by Friday.

Denials that any progress other than that noted Friday, would result in a reversal that gives all of this week’s gain back, and then some.

If December 31 passes without a solution, I believe it would be intentional and accompanied immediately by a plan to adjust the Bush-era tax cuts and get certain members of the House off the hook from their pledge to Grover Norquist, not to raise any taxes. Norquist heads up Americans for Tax Reform.
I see the framework of a deal decided on by the “lame duck” (outgoing) members of the House, with the final details worked out by the new membership in 2013.

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Expect reports of “a deal” on the fiscal cliff, followed by denials to first run stocks up, then take them down. It’s the “ news whipsaw,” it’s cruel and can chew a portfolio to bits if an investor gets on the wrong side of its many moves. Fully discouraged, an investor is then likely to miss the turn when it comes.
FACEBOOK (FB - $23.56): Friday’s $1.39-point surge took FB up close to my target of $23.65, Last week, “Market Watch” 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: Economic indicators are beginning to reflect the impact of Hurricane Sandy and are mostly not representative of the true economic picture.
Existing Home Sales (10:00) - Down 1.7% in September to annualized rate of 4,750 million units
Housing Market (10:00) - Gained 1 point in October to 41.
Housing Starts (8:30) – Spiked 15% in September to an annualized rate of 0.872 million units, up 34.8% vs. year-ago The multifamily component gained 25.1%.
Jobless Claims (8:30) – Surged 78,000 in the November 10 week to 439,000 reflecting the potential of a distortion by Hurricane Sandy.
PMI Manufacturing (8:58) - dropped in October’s final reading to 51.0 from 51.1 in September
Consumer Sentiment (9:55) –Rose 2.3 points to recovery high of 84.9. Confidence in current conditions was 91.3 vs. 88.1 in October.
Leading Indicators (10:00) –Rose 0.6% in September from a downward revision in August.

George Brooks
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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