Trader's Buy, But Uncertainties Remain as Market Searches for Rebound

George Brooks |

Do not get discouraged. A series of buying opportunities is shaping up. Expect false starts and spikes down as the market probes for a level that discounts uncertainties and sets up a base for a rebound.

The election is history, the fiscal cliff takes center stage. That said, any comment by President Obama today at 1:00 p.m., or in coming weeks about a plan to solve the fiscal cliff dilemma will trigger a rally.

But, he must come up a unique approach, loaded with specifics that House Speaker John Boehner accepts as potential game changer.
If he does that today the market rallies. It may rally in expectation of his speech.

If President Obama simply promises to negotiate in good faith and a makes a plea for the Republicans to do likewise the market GOES DOWN.

A new initiative will generate a rally that has legs, or at least until his proposal is shot down.

Listen, this is one of those situations that stands to generate a lot of volatility, a stop-and-go market action – whipsaw. Up on hope, down on disappointment.

Investors must be careful not to act on the “news.” This is classic crisis market action – classic.

Investor’s first read - an edge before the market opens
DJIA: 12,811.32
S&P 500: 1377.51
Nasdaq Comp.: 2895.58
Russell 2000: 793.65
(Friday, November 9, 2012 (9:17 a.m.)

Both parties have to save face and sell any agreement to their key supporters. Expect a lot of confrontation, but no knockout punches thrown. Both parties must meet close to the middle, but it won’t be obvious that is what’s happening until an announcement is made.

The big driver here is “consequence.” Economic consequence: If the fiscal cliff isn’t addressed head-on, the U.S. economy and world economies get hurt, big-time. Plus the U.S. gets another slash in its credit rating. Political consequence: trouble makers get bounced in the 2014 mid-term elections by the opposition party, or by their own party through a primary.

The Super-committee refused to meet in the middle a year ago, giving birth to the fiscal cliff, a number of tax increases and automatic deep budget cuts that are slated to go into effect January 1.

Five outcomes are possible.

One: we plunge over the cliff and all Hell breaks loose.
Two: an acceptable solution is reached.
Three: the deadline is postponed pending the workout of details on an agreed upon solution
Four: intentionally letting sequestration (automatic spending and tax cuts) kick on January 1, accompanied by an immediate implementation of a solution.
Five: an outcome I haven’t thought of.
Bear in mind, Speaker Boehner does not want his legacy to be a failure to lead the House to successful solution for deficit reduction. The Dems are not the only one’s who gained leverage on Nov 7 – he did. He and President Obama came close to addressing the issue a year ago, but he couldn’t get Tea Party members to budge.
TODAY:
I see a “trader’s” buy this morning, especially if the DJIA drops 80 to 100 points in early trading.
A token rally leading up to the President’s 1 o’clock speech without a big plunge first is fraught with risk.
If nothing new is announced, the market will sell off. If exciting new initiatives are offered, the rally has legs.
I don’t see a long-term buy yet, just a shot for nimble traders. The Dem and Rep troops are mustering for a slugfest over the resolution of the fiscal cliff. They are just beginning to lob nasty salvos back and forth.
But there are indications that the crisis may be avoided, or deadline postponed pending a stretched out solution.
A prolonged battle and worsening in the global economies will take the market much lower, possibly as low as DJIA 11,475 (S&P 500: 1185)
FACEBOOK (FB - $19.99): FB broke support at $21 and is now at risk of a tumble to $18.75. It can drop lower in face of very emotional selling in the overall market. FB’s ability to move up is complicated by millions of shares coming on the market that could be sold , shares that were in “lock-up” from its IPO. On Monday 234 million shares became eligible for sale, on Nov. 14,777 million shares become eligible and on Dec. 14 another 156 million shares. Yesterday’s volume was 34 million shares.
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, but think my objective here has been accomplished.
George Brooks
*Stock Trader’s Almanac: This is a “must own” publication, loaded with daily, weekly, monthly savvy. It is “the source” for strategies, seasonalities, recurring events, useful stats. Published annually, I have used it every year since 1968. Nothing compares !
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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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
ARR.P.B ARMOUR Residential REIT Inc. Preferred Series B 23.19 -0.04 -0.17 11,689

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