04 Jan
Daily Market Commentary

Stocks Soar On Fiscal Cliff Deal But Close Below 2012's High

Eventually, we are heading higher.

Eventually, we are heading higher.

Friday, January 04, 2012
Stock Market Commentary:

Stocks are back in a confirmed uptrend after congress finally managed to put the best interest of the country ahead of their petty bickering. Stocks soared and closed above all near term levels of resistance that have been outlined here several times in this report (50 DMA line, downward trendline, neckline of the bullish inverse head and shoulders base, and 1448- December’s high). The next level of resistance for the major averages is 2012’s high (1474 in the S&P 500). Meanwhile, the next level of support is 1401 and then 1343. The uptrend that began on Friday, November 16, 2012- after politicians hinted that a deal would get done for the fiscal cliff remains intact and offers an interesting lesson for investors- stocks are closely paying attention to government officials (Summer rally was sparked after Draghi said he will do whatever it takes to save the Euro). It will be very interesting to see if the S&P 500 can breakout above its 2012 high (1474) or pullback to consolidate its recent gain.

Monday-Wednesday’s Action: Stocks Soar After The Country Doesn’t Go Off The Fiscal Cliff

Stocks moved higher on Monday after the bulls showed up and defended the 50 and 200 DMA lines in the S&P 500 and DJIA. Investors sent stocks higher after VP Biden got involved and brokered a last minute deal with Senate leaders to avoid the US from going over the fiscal cliff. Now that we are in an “aging” bull market the type of stocks that show up and “lead” the market higher are more value oriented and less growth. Please keep that in mind as you look for leading stocks ahead the bull market’s 4th birthday (March 2013).  Stocks were closed on Tuesday in observance of the New Year Holiday.
On Tuesday, stocks soared after a deal was announced regarding the Fiscal Cliff. Yes, both sides had to compromise and the deal was not ideal but that doesn’t matter. What matters is that investors are happy with the deal and that stocks soared on the news. From my point of view, everything outside the price action of the major averages and leading stocks is noise and the market is acting just fine right now. Especially, because there are so many bears out there and so many typical CANSLIM/growth investors are getting killed and have missed this rally- shocker, I know. That is one reason why I take a balanced approach between both growth and value investing. I was happy to see the S&P 500 break and close above 1448 which was last month’s high. Looking forward, the next level to watch is 1474 (2012’s high). Until either level breaks I’d have to expect this range bound action to continue. If we breakout above resistance-we are likely headed higher. Conversely, if we break down below support – we are likely headed lower. Meanwhile, our stocks are working marvelously right now so as Livermore would say, our job is to “sit.”

Thursday & Friday’s Action: Stocks Digest Earlier Gains

Stocks ended lower on Thursday as they digested Wednesday’s large move. The Fed released the minutes of their last meeting which suggested the Fed may end their stimulus sooner than expected. This sent the US dollar soaring and precious metals plunging. Economic data on Thursday was mixed to slightly higher. The ADP National Employment Report said that US employers added 215K new jobs in December which topped the Street’s expectation for a gain of 140K. Weekly initial jobless claims totaled 372K, which missed the Street’s expectation for 365K. The weekly MBA Mortgage Applications fell by -10.4%, which follows last week’s decline of -11.2%. Finally, December Challenger Job Cuts slid by -22.1% which followed the prior month’s reading for an increase of +34.4%. Before Friday’s open, the Labor Department said U.S. employers added 155K new jobs in December as the unemployment remained steady at 7.8%, which is above the Fed’s 6.5% target.

Market Outlook: Uptrend

From our perspective, the market is back in an uptrend which bodes well for the market and the economy, by extension. As always, it is extremely important to be flexible in your approach and change when the facts change (Thank you Mr. Keynes). For those of you that are new to our work, on October 9, we said “the rally was under pressure” and then said the “rally was over” on Oct 19. Immediately after that note was published, stocks fell sharply and a lot of technical damage occurred. Then we put out a note on Friday, November 16, 2012 (the exact low for this move) titled, “Time For A Bounce.” Stay tuned as we will continue to keep you one step ahead of the crowd. As always, keep your losses small and never argue with the tape.

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