It’s too early for a deal to be announced. Odds favor more “News whipsaw.”
Optimistic statements yesterday triggered a strong rally and that is spilling into today.
But, suddenly, too many investors are sure a fiscal cliff agreement will be reached before the December 31 deadline. A Bloomberg survey notes only 6% of those surveyed expect failure.
Whoa ! Such a consensus is seldom right, what’s more it sets up the potential for a jolt if a turn for the worse surfaces.
At best, I expect the parties to agree to enough of a framework to avoid a plunge over the cliff, with details hashed out in 2013 when the new congress is sworn in.
While this avoids a plunge over the cliff, it extends uncertainty about how much taxes for upper income people are raised and which programs are hit by spending cuts and by how much.
A lot has been agreed upon, but each party must give the impression it is fighting for its constituents’ interests. More posturing is needed, more “selling.”
Look for a spike in stock prices that may carry over into Friday. Stocks turned yesterday at my support levels and rebounded in expected news whipsaw fashion.
A follow through this morning should run into resistance providing traders with an opportunity to sell.
Resistance starts at DJIA 13,075 (S&P 500: 1417). More optimistic statements could bump the market higher to DJIA 13,155 (S&P 500: 1423) – a stretch.
Investor’s first read – an edge before the market opens
S&P 500: 1409.93
Nasdaq Comp.: 2991.78
Russell 2000: 813.50
(Thursday, November 29, 2012 (9:07a.m.)
GOOD EXAMPLE OF THE “NEWS WHIPSAW”
What could be a better example of the “news whipsaw” than yesterday’s market action – DJIA down 113 points in early trading in face of dire forecasts of a resolution to the fiscal cliff, then rebounding 215 points on optimistic statements by President Obama and House Speaker Boehner.
The Market opened sharply down yesterday in face of news headlines:
-“Reid Says Parties Making Little Progress on Budget Talks”
-“Fiscal Cliff Compromise Elusive as Congress Returns”
-“Republicans and Democrats Differ on Taxes as Cliff Looms”
The market turned abruptly in the morning when both Obama and Boehner expressed optimism.
After a meeting yesterday between leading corporate heads and President Obama, Goldman Sach’s CEO Lloyd Blankfein indicated he was confident Obama’s plan to reach an agreement was detailed and “very.credible… and reachable.
WHAT NEXT ?
More news whipsaw !
FACEBOOK (FB – $26.36): No change from yesterday. Technically, FB should run into resistance at $27.33. This area represents a longer term resistance than those in the last 3 months, since the stock is rising to an area where it broke down sharply in July. Investors who rode out the drop to $17 are likely to be sellers, happy to get a second chance to sell. Investors who bought in after that plunge may want to clip a profit here. 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:
“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.