No Room For Fiscal Cliff Disappointment Now

George Brooks |

My warning early last week about a “news whipsaw” still stands, especially after such a sharp, 5-day rebound Friday. Currently, the Street expects a bipartisan agreement, anything to the contrary would unexpectedly disappoint investors, resulting in a sharp decline.
My most recent post here Tuesday Nov. 20, warned of a “news whipsaw,” whereby the market would surge on news of a potential solution to the fiscal cliff, then plunge when doubts of a solution surfaced.
This is classic market behavior in face of the resolution of contentious issues.
I also alerted readers to a potential blow-off last week to the DJIA 12,945-12,985 area. It closed Friday at 13,009 on very light volume.
Investor’s first read - an edge before the market opens
DJIA: 13,009.68
S&P 500: 1,409.15
Nasdaq Comp.: 2,966.85
Russell 2000: 807.18
(Monday, November 26, 2012 (8:16 a.m.)
For weeks, I have expected a battle over tax and spending issues to result in an agreement to a framework for addressing the fiscal cliff before the December 31 deadline pursuant to details being worked out in 2013 by the “new” Congress..
President Obama and Congress may have already worked out a framework for a bipartisan agreement with plans to release that news shortly before Congress adjourns December 14 for the Christmas holiday in which case, the market would continue to rise.
Pressure on Congress to avoid sequestration (automatic spending cuts and tax increases) is coming from all sides – U.S. industry, voters, the Fed, both parties, Europe, etc.
It would be uncharacteristic for Congress not to take a fight well into December.
Powerful lobbies are ready to defend their turf. AARP opposes cuts to programs that impact benefits and aid to the elderly and poor.
The Charitable Giving Coalition is lobbying to prevent a slash in charitable giving deductions.
The Service Employees International Union and American Federation of State, County and Municipal Employees and National Education Association are urging tax increases on higher incomes.
The American Sustainable Business Council and Business for Shared Prosperity has submitted a letter signed by 600 business owners urging higher taxes on higher incomes.*
TODAY: Odds favor a brief spike in the market this morning, then a turn down. Resistance starts at DJIA 13, 075 (S&P 500: 1417). Obviously, good news on the fiscal cliff pushes prices higher, though its 5-day run up has discounted much of that possibility.
ALERT:
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 - $24.00): After another jump Wednesday, FB ran into profit takers Friday. As a result, its new support is $23. Technically, 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.
This week’s reports include:
MONDAY:
Chicago Fed National Activity Ix (8:30) – Improved to zero in September from a minus 1.17 in August.
Dallas Fed Mfg. Ix. (10:30) – The general business activity index rose to 1.8 in October, the first positive reading since June. The production index dropped to 7.9 from 10.0. New orders dropped from a plus 5.3 to a minus 4.5.
TUESDAY:
Durable Goods (8:30) – Soared 9.8% in September after a 13.1% plunge in August. The difference reflects the fact aircraft orders in the transport sector missed the August report and hit heavily in September. Ex-transport, orders rose 2.0% in September after a 2.0% drop in August.
S&P/Case – Shiller Home Price Ix. (9:00) – Increased 0.5% in August after a 0.3% gain in July. Versus a year ago, the index is up 2.0%
Consumer Confidence (10:00) – Rose in October to 72.2 from 68.4 in September.
George Brooks
“Investor’s first read – an edge before the open”
sensiblesleuth@gmail.com

*McClatchy Newspapers
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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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