A market obsessed with daily fiscal cliff headlines is as
volatile as ever. One positive headline is followed by a negative
one. The market didn't like comments by Senate Majority Leader
Harry Reid on Tuesday; it liked what it heard from House Speaker
John Boehner on Wednesday, but it didn't like it what it heard
from Boehner on Thursday. So it goes.
Pre-market stock futures Friday were looking a lot better than
they did last night after the White House proposed $1.6 billion
in tax increases, $400 billion in unspecified entitlement program
cuts and an abolishment of the debt ceiling. Republicans said it
was nothing more than a rehash of prior budget proposals.
The story remains the same: It's hard to be long with
conviction and it's hard to be short with conviction. Usually
during times like this -- when uncertainty is rampant and whipsaw
action is commonplace -- it's a good idea to do nothing. But the
fact remains that the market trend is upward until proven
Mr. Market isn't making it easy though, flashing mixed signals
about its underlying health. On the one hand, major averages
flashed a buy signal exactly one week ago. Solid percentage gains
were made on the fifth day of the rally attempt that started
November 16. On the other hand, major averages flashed a
higher-volume decline Tuesday -- not good to see in the early
stages of a rally. It was mild distribution, but distribution
nonetheless. Still, the overall action in growth stocks has been
pretty good. The market has served up its fair share of technical
breakouts -- a critical element of any sustained rally.
Overall, the Nasdaq Composite's recent price action has been
encouraging since hitting a low of 2,810 -- up eight up days out
of nine with closes at or near session highs. But the tech index
is fast approaching a possible resistance level at 3,027 -- its
50-day simple moving average. This price level could be a ceiling
in the near-term.
Some short-term softness in the market wouldn't be surprising,
but recent price and volume trends in the major averages say the
chances are still pretty good for a rally into the end of the
year. Overall, it's OK to embrace the nascent rally but not
necessarily with a tight grip. It's too early to aggressively
commit capital, but it's OK to nibble at few long positions and
see how they work.
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