Actionable insights straight to your inbox

Equities logo

Stock Market Rally Risky

Yesterday’s rise in prices needed heavier volume to convince me the BIG money can’t wait to load up on stocks. Money manager’s year-end portfolio window dressing will offset some tax

Yesterday’s rise in prices needed heavier volume to convince me the BIG money can’t wait to load up on stocks. Money manager’s year-end portfolio window dressing will offset some tax selling, but concern for the outcome of Congressional debate over the fiscal cliff will discourage investors from heavy commitments.

Expect the DJIA to cross13,100 en route to resistance at 13,185, buoyed by a drop in the unemployment rate to 7.7% from 7.9%. The S&P 500 will struggle to pass 1425.

Based on yesterday’s market action, there is minor support at DJIA 13,043 (S&P 500: 1,411, but minor support levels in a news-sensitive market that has a negative bias cannot be trusted.

Yesterday I referred to Apple (AAPL) as an example of a stock that may be under selling pressure by money managers, not wanting to show it as a holding in their year end report, since it has been getting hammered since mid-September.

I said I see resistance starting at $567 and pegged support just below $525, though conceded a drop to$ 465 is not out of the question.

It dropped to $518 from which it rebounded sharply to close at $547. I expect it to test yesterday’s support which now is $527. Technically, that was a one-day reversal on heavy volume, but that volume came in early trading. I am changing my resistance to $557. It looks like AAPL needs to spend more time consolidating in the $540 – $550 area with real risk of another drop below $530 by Monday..

Looks like a slugfest between institutions and hedge funds with the bears leading on points.
DJIA: 13,074.64
S&P 500: 1413.94
Nasdaq Comp.: 2989.26
Russell 2000: 821.79
(Friday, December 7, 2012 (9:10a.m.)
If I sense there is a real need for my technical input here, I will track AAPL daily just like I did FB. I don’t own either.

WARNING! (Repeat for new readers)

Again, I want to remind readers of the possibility of a sharp decline in the stock market after a deal is announced. Such a decline would be greater if the market is up prior to a deal, then rallies sharply when the announcement is made.
Smart money often “sells into the news.”

The fiscal cliff is gaining huge visibility, and is now being discussed everywhere by everyone. An announcement would bring relief and excitement and could trigger sudden emotional buying with a “gap” open for the market. Gap opens are often dangerous to buy, since an investor often pays the high for the day. If it’s a fake-out and the market drops, the loss is even more painful.

Yesterday, I referred to the 15% plunge that followed the August 2, 2011 announcement of an agreement to raise the debt ceiling, which accompanied the Budget Control Act of 2011, which avoided U.S. default on certain obligations, and which set up the not-so-super committee and ultimately led to today’s fiscal cliff.

That could happen again, since Post election years (2013) have a strong tendency for being downers.*
The reason: Politically, it is a great year for making unpopular decisions, since there are 3 years until the next presidential election. It looks like there are a host of unpopular issues on Congress’ plate going into 2013, so beware!

Presently, I see Congress taking this down to late December 31 with a framework for a deal worked out pursuant to the details hammered out by the new Congress next year.

So far, the market is acting as if a deal will be reached before year-end. IF THE PERCEPTION CHANGES, THE MARKET IS GOING TO GO SOUTH.

FACEBOOK (FB) at $26.97: . 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 “lock-up” that came out of its IPO.s
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: www.mam.econoday for details reports on this week’s calendar and an excellent recap (plus graphs) of last week’s reports.

Employment Situation (8:30)
Consumer Sentiment (9:55)
*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.

The Fed model compares the return profile of stocks and US government bonds.