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Rally a Fake Out – Opportunities in 2013 – at Lower Prices

That’s it folks! We went to the edge, but not over. The DJIA rose 166 points Monday in anticipation of a cliff “deal,” and will add another 200 points at the open this morning.For weeks, my

That’s it folks! We went to the edge, but not over. The DJIA rose 166 points Monday in anticipation of a cliff “deal,” and will add another 200 points at the open this morning.
For weeks, my position has been that we will get the framework of a deal by 10:45 December 31, but that the rally before and after would be a fake out.
We got a deal, but I believe this rally will be a fake out. Can this rally continue for a few days ?
Yes, the deal will prompt emotional buying and institutions may be putting cash to work as 2013 begins.
This rally would have more credibility if the market had plunged in face of fear that a deal wouldn’t be reached. It didn’t. It rose in expectations that we wouldn’t go over the cliff, ergo the news has already mostly been discounted in the market.
I see the next 3-4 months as fraught with divisive debate and uncertainty.
We will get a “gap” open today. Buying at the open runs a big risk of paying sharply marked up prices. If the slide I expect in coming months develops, purchases at these prices can quickly turn into losses.
Beyond this lies a lot of Congressional haggling and the possibility of another round of brinkmanship accompanying the need for a debt ceiling increase to pay for costs already approved and incurred, not new programs.
I see new uncertainties, and that stands to be a drag on stock prices for part of the year, at least.
Post-election years have frequently been downers,* because they are used by politicians to attack unpopular issues well in advance of the mid-term elections.
S&P 500: 1426.19
Nasdaq Comp.: 3,019.51
Russell 2000: 849.35
Wednesday, January 2, 2013 (8:50 a.m.)
POSITIVE NOTE: While I am bearish about the early months of 2013, the year can produce a lot of attractive opportunities, just at lower prices.
The U.S. economy has recovered from the worst recession/bear market since the 1930s. We survived, and that is huge.
Housing is in recovery mode, increasing homeowners’ “wealth effect,” corporations are flush with cash and hopefully the 113th Congress can resolve key spending issues, setting the stage for a sustainable recovery beyond the current one.
I see an interruption to the bull market that started in March 2009, but which has not fully run its course. Individual investors are largely absent, but they will return to buy near the end of the bull market when speculation ramps up. That can be a year or two out.
I was premature in my earlier forecast that the long-term bond bubble would burst, but now feel it has already begun with a top traced out between July and December. U.S. Governments were in demand as a refuge from international chaos. As the tensions from European sovereign debt woes abate, money will flow out and into stocks where a better return is hoped for.
APPLE (AAPL: $532.17)
Aggressive traders who bought my Monday “traders’ buy” at the open Monday may want to clip a quick profit above $550. Some of its pop today is short covering.
What we don’t know yet is how aggressive institutional buying will be after year-end. Since AAPL is down big in 6 weeks, many money managers may not want to show it as a holding on their year-end reports, but would buy it after December 31 –hmmm.
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB – $26.61): FB has had a seller on-balance since mid-December, possibly tax selling (gains for some, losses for others ). It has a buyer before the open. As expected, FB did attack resistance Monday at $27 but failed in its attempt in spite of a strong close in the overall market. It has jumped above $27 today, but will struggle with resistance between $28 and $29. Institutions that did not want to show FB in year end reports, may be buying now.
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: I am going to list the economic reports will not include the numbers from the last report, since those numbers are often revised significantly 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.
Dallas Fed mfg. Svy. (10:30)
PMI Mfg. Ix. (8:58)
ISM Mfg. Ix. (10:00)
Construction Spending (10:00)
ADP Employment Rpt. (8:15)
Jobless Claims (8:30)
Employment Situation (8:30)
Factory Orders (10:00)
ISM Non-Mfg. Ix. (10:00)
RECENT POSTS:Dec 20 DJIA 13,251 “Weekend Announcement ? Rally Fake-Out Monday ?”
Dec 21 DJIA 13,311 “Deal Before Dec. 31 Still Possible”
Dec 24 DJIA 13,190 “Bear Market 2013 or Just Ugly Volatility ?”
Dec 26 DJIA 13,139 “Don’t Buy a Fiscal Cliff “Deal” Rally”
Dec 27 DJIA 13,114 “ Congress Returns – White Knuckle Time”
Dec 28 DJIA 13,096 “Don’t Buy a Cliff “Deal” Rally – 2013 Rocky”
Dec 31 DJIA 12,938 “Deal Tonight ? But Rally a Fake Out”
*Stock Trader’s Almanac: The new one is out – get it !
George Brooks
“Investor’s first read – an edge before the open”
[email protected]
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.

Nvidia’s management talent is one thing I always look for in any investment. It’s not the only thing, of course.
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