Sell Into a Fiscal Cliff Deal Rally?

George Brooks |

Sell Into a Fiscal Cliff Deal Rally?It’s all about the fiscal cliff (for now). Be prepared for an announcement that both parties are close to an agreement on enough of a framework to avoid a plunge over the cliff, or even that they have agreed, with the details left for the new Congress to work out in 2013.
What we are seeing now is a lot of political posturing, after all any deal must be “sold” to each party’s constituency, and that can’t be done too early in the process.

This is great political theatre, and the press looooves it. Be careful. There are egos here, faces to be saved, and political points to be garnered. The real angst will come in debating the details of a deal next year.

An announcement should trigger a sharp rally of 185 points in the DJIA, or so. It is well worth considering selling into that rally, as I think the odds favor the market will close lower if not that day, then in a day or two.

There should be increased profit taking before year-end, since it is uncertain what the capital gains tax rate will be after December 31.
Yes, a deal is greatly wished for, but be careful what you wish for. Odds favor a nasty decline in early 2013, It is a post-election year,* and they tend to be downers, since pols tend to get unpleasant issues off their plates in time for the mid-term and presidential election years.

DJIA: 13,169.88
S&P 500: 1418.55
Nasdaq Comp.: 2986.96
Russell 2000: 826.26
(Tuesday, December 11, 2012 (9:09 a.m.)

Resistance begins at DJIA 13,185 (S&P 500: 1,423).
Minor support is DJIA 13,085 ( S&P 500: 1,411)

Good news/bad news on the cliff can change this picture in a heartbeat.

NOTE: The euro-zone has been quiet, but that may change with mounting uncertainties in Italy where Prime Minister Mario Monti is being forced to step down with the likely successor, former PM Silvio Berlusconi, returning. Berlusconi is anti-tax, anti-austerity. His position stands to raise questions about Italy’s ability to resolve its sovereign debt issues.

There is a big difference of opinion in terms of fundamentals for Apple (AAPL), and I am only focusing on the “technical” action of its stock here.
Expect a rebound in early trading which can reach resistance at $552 by Wednesday. Support is $518.

As a rule I don’t cover stocks, but made an exception for Facebook (FB) for the reason stated below. I will track AAPL for a while longer, hoping to help readers navigate this decline and find a bottom. Recently, I referred to it as a stock that may be subject to year-end selling as a result of its 25% plunge since September 21.

Its market action reflects the Street’s expectations for the company’s fundamental outlook (revenues/earnings). It appears those expectations are unfolding as I write.

FACEBOOK (FB) - $27.84: . There is definitely overhead supply (resistance) between $27.80 and $27.40. This area represents a longer term resistance than those in the last 3 months, since the stock has risen to an area where it broke down sharply in July. While FB recently broke up through $28 to $29, it slipped back and should have trouble moving up past $28.60. Bear in mind this is December and some institutions want to show FB in their Annual Reports now that it has rebounded from the teens, so there will be some buying. At this level, it may encounter some of the 773 million shares from its IPO“lock-up.”

Today on FB:
It will take a major piece of news and big volume to penetrate resistance, but now that FB is not perceived as a “loser,” owing to its 10-point rebound since mid-November, institutions may not hesitate to show it as a holding in their year-end reports. Buls have the edge.
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 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: for details reports on this week’s calendar and an excellent recap (plus graphs) of last week’s reports.

FOMC Meeting begins
ICSC-Goldman Store Sales (7:45)
International Trade (8:30)
Wholesale Trade (10:00)

FOMC Meeting announcement (12:30)
Bernanke press conference (2:15)

Jobless Claims (8:30)
Producer Price Ix (8:30)
Retail Sales (8:30)
Business Inventories (10:00)

Consumer Price Ix (8:30)
Industrial Production (9:15)

George Brooks
“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.

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Symbol Name Price Change % Volume
AAPL Apple Inc. 117.65 1.05 0.90 23,538,673
FB Facebook Inc. 133.28 1.21 0.92 17,470,227
LGTA:CA Logistec n/a n/a n/a 0


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