I have been expecting the market to either rally ahead of an announcement of a cliff deal, or on the day of an announcement, but to then be followed by a correction in early 2013.
Monday, I wrongly wrote a correction had already begun ahead of schedule,
and made my miss-call more obvious with my headline, “Correction Underway.” (!)
With its renewed upswing, the market continues to celebrate a “deal” ahead of time.
It would take days to draft any tentative agreement made between President Obama and House Leader Boehner before it could be submitted to Congress to vote on. This is why I think an announcement will come over the weekend, to give Congress as much time as possible to consider it and for the paperwork to be processed.
An announcement would be greeted by a “gap” open at sharply higher prices, which I believe would be followed by a sell off, quite possibly the same day. Monday’s market will close at 1:00 p.m.
I don’t see sequestration except by design to facilitate a deal for those in Congress who are bound by a pledge to Grover Norquist NOT to raise taxes.
Uncertainty will continue AFTER a deal. That suggests a sharp decline or choppy, sideways-to-down trend into March/April.
S&P 500: 1446.79
Nasdaq Comp.: 3054.53
Russell 2000: 847.69
Wednesday, December 19, 2012 (9:10 a.m.)
We are in an emotional, news sensitive market where support and resistance levels are unreliable. The broad-based S&P 500 is up 7.7% in three weeks. At this point, a spike following an announcement could get to DJIA 13,475 (S&P 500: 1462). At these levels, and more so at higher levels, a lot of a “deal” has already been discounted.
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.
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.
APPLE (AAPL: $533.90)
If a 24% drop does not attract aggressive buyers at this level with AAPL selling at 11.5 times trailing 12 months earnings, AAPL will go lower.
Whether we go on to break below $500 and down to my worst case target of $445 - $465 depends on the BIG money. It may think these levels are attractive enough to begin serious buying.
I think AAPL needs to do more work before a significant upturn can be sustained.
Breaking support at $510 would signal serious weakness and increase odds of a drop below $500.
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB - $27.71): FB is still trying to break out of resistance starting at $28.35. The bulls still have the edge, but need heavier buying to break out above $29 en route to the 30s. Based on the last two day’s action, support now rises to $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: 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.
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)
*Stock Trader’s Almanac: The new one is out – get it !
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