Expect the market to get buffeted by conflicting reports about solutions for the fiscal cliff dead-lined December 31.
One day it will look like the extremes of both parties can meet in the middle, the next day, it will look hopeless.
The result – volatility.
The Street doesn’t seem too worried.
Common sense suggests the “lame duck” congress will agree to a framework for a “deal,” with details worked out in 2013 by the “new” Congress.
Pressure here and abroad is mounting to avoid a failure to prevent a plunge over the cliff, resulting in $607 billion of automatic tax increases and spending cuts.
Congress has wiggle room and can postpone the deadline for months. That would extend the uncertainty that has caused CEOs to delay decisions on spending and hiring. Inaction would hurt the market, not known for good performance in post-election years.
Money managers can be expected to look beyond the cliff to an economy that will strengthen again in a year or two, but they can be expected to buy selectively and especially if the market declines in response to discouraging news about a solution for the cliff.
Investor’s first read – an edge before the market opens
S&P 500: 1406.29
Nasdaq Comp.: 2976.78
Russell 2000: 809.02
(Tuesday, November 27, 2012 (8:16 a.m.)
Expect the discourse between ideological factions to sharpen now that Congress is back in session. The rebound in stocks since November 16 has discounted an “agreement” of sorts about the fiscal cliff.
Technically, the market averages are running into resistance, increasing the likelihood of a correction down, or sideways.
Resistance starts at DJIA 13,075 (S&P 500: 1417).
European stocks rose as its finance ministers eased terms on aid for Greece, namely a rate reduction on bailout loans and the suspension of interest payments for a decade, giving it more time to get its house in order. The move cleared the way for Greece to receive its 34.4 billion-euro ($44.7 bn) loan installment in December. Now that’s kicking a can down the road.
At some point, certain economic reports will begin to reflect the wrath of Hurricane Sandy, which hit New Jersey on October 29 impacting 24 states as far west as Wisconsin, killing 253 people, and including property damage and business interruption, cost the economy an estimated $65 billion.
I doubt the Street will overlook the distortion when the reports are released in the near future.
FACEBOOK (FB – $25.94): Technically, FB should run into resistance at $37.33. This area represents a longer term resistance than those in the last 3 months, since the stock is rising to an area where it broke down sharply in July. Investors who rode out the drop to $17 are likely to be sellers, happy to get a second chance to sell. Investors who bought in after that plunge may want to clip a profit here. It has defied gravity which has suggested it should be weaker in face of the potential for selling from 773 million shares that recently came out of its IPO lock-up. “Market Watch” recently 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: We will get a host of economic reports this week. While the fiscal cliff issue dominates headlines, a firming U.S. economy in face of weakness in the euro-zone economies would be very good news for the stock market.
“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.