How far will the market fall if we go over the cliff?
Disappointment over a lack of an agreement by Christmas could result in an immediate selloff.
By Sam Collins
Stocks slipped for most of the day Thursday following House Speaker John Boehner's negative comments on the lack of progress on averting the fiscal cliff. He even suggested that President Obama was willing to go over the cliff in order to push ahead with his position on tax cuts for the wealthy.
A late-day announcement that the president and speaker would meet at 5:00 p.m. caused a minor rally, but even most of that was taken back before the close.
At Thursday's close, the Dow Jones Industrial Average was off 75 points at 13,171, the S&P 500 fell 9 points to 1,419, and the Nasdaq lost 22 points at 2,992. The NYSE traded 662 million shares and the Nasdaq crossed 398 million. On the Big Board, decliners outpaced advancers by 2.3-to-1, and on the Nasdaq, decliners were ahead by 1.7-to-1.
While investors' attention has been focused on the fiscal cliff, the U.S. dollar has been strengthening. As illustrated by the PowerShares DB US Dollar Index Bullish Fund (UUP), the dollar appears to be putting in a bottom at current levels after falling from its 200-day moving average in November. MACD is positive as support is forming at the support line of a long-term bull channel.
The NYSE Composite is an index of all stocks listed on the New York Stock Exchange. Therefore, it is often more representative of what the "stock market" is doing than other indices. Here we see that while the Dow and Nasdaq, and even the S&P 500, have been trapped in a narrow trading range, the NYSE Composite is just shy of a massive bullish breakout.
In November, it reversed from its intermediate support line, and for three weeks has been racking up gains. It is currently overbought as shown by the MACD indicator, and thus will likely pull back to support at its 50-day moving average. But the overall pattern is bullish and could even evolve into a massive reverse head-and-shoulders. We'll continue to focus on the chart during the next month.
The two charts shown today, UUP and the NYSE Composite Index, appear to be incompatible. But are they? If the dollar rallies, then stocks should drop; however, UUP has considerable resistance at its 200-day moving average, and the NYSE Composite has support at its 50-day moving average. A near-term correction in stocks resulting from going over the cliff could set up stocks for an immediate correction and then a strong move up and a breakout in late January.
This week’s AAII sentiment survey appears to support this view. Bearish sentiment -- expectations that stock prices will fall over the next six months -- dropped by 4.5 percentage points to 30.1%. This was the lowest level of pessimism registered by the survey since Aug. 23. Bullish sentiment rose to 43.2%, up 1 percentage point. Since this survey is a contra-indicator, it supports the view that we should expect a correction to occur shortly.
Disappointment over the lack of an agreement on the fiscal cliff by Christmas could result in an immediate sell-off. But there appears to be enough support to hold a decline to no more than 5% to 8%. The New Year may very well bring new highs despite the near-term malaise.
Earnings = $246K
Fed + state taxes = 72K
Medical Insurance = 7K
Property Tax = 6K
Sales Tax ???? = California - one of the highest
Fuel taxes ???? = California - the highest in the US
2013 - taxes going up
House under water and bank refuses to discuss loweing the current 6% Int rate
Gee - can someone tell me at what point I will be paying "enough"
Obamacare tax increases, debt to GDP ratio ever-rising, FED floodgates wide open, Eurofix nowhere to be seen, regulationGATE unchecked......... hmmmm.... recession....hmmm....
There's also no telling how many trillions more Bernanke is willing to pump in to keep up appearances. Hell, we can't even get an accounting of what he's already bought. He's spoken several times publicly about equity purchases as a viable option, and it's not unreasonable to think he's already done so.
Then you have the variable that is the fed gov. It's definitely a plausible scenario that the Repubs lose control of the House in 2014. That will give Obama and the Dems another 2 years to wreak havoc and there's no telling what might happen then. There could be another trillion dollar "stimulus" program right around the corner if they get their hands on the checkbook again. We could easily see the Dow float to 20k while the price of milk hits $8/gallon and the Euro skyrockets to over $2.
The one question we must ask is whether anything substantive was put in place over the last 4 years that actually addressed and solved any of our economic problems. Or did we just spend the last 4 years slapping paint and wallpaper on the walls of our economy and spraying a bunch of air freshener around the house in hopes that no one notices all the water and termite damage that permeates our entire structure.
I WOULD RATHER......Put it this way, SOME stocks are maybe overpriced by 20%
Some are over by 10%....
And many or most are RIGHT PRICED.....Need to go back and do some research...
Market correction...??? Could be 10%, possible ?
But I would sooner think 5-7% with a recovery within 30 days....IMO.
The SKY is not FALLING.....And DOMESTIC TURKEYS or PIGS can't fly....
No matter what you have read or been told.
Well apparently...Saph500, Is not an investor..
And WHY would you wish all that HARM on the retirees/others that are in the Markets trying to make enough on dividends to supplement other savings and SS....??
The Oldies took it in the backside big time in 2007-2009 early....They need a break.
Too bad I can't really tell you, what I would like to say...mIm...
All marketing from the used car lots to Wall st. are CLEVER LIES ! It's always filled with fine print and disclaimers that the average American cannot decipher. Only those with the decoder key can make sense of the outcome and solve the puzzle. Insider info and billionaire ponzi scheme designers have the edge and always will !
America is one big casino and lottery outlet with the house rigging the game !
Q) What's the difference between a Carnie and a Congressman ?
A) The carnie gives you better odds in receiving something for your money!!!
I wonder about Mitt Romney's secret sauce to create the 12 million jobs. What happened to that? Repeal Obamacare on day 1... no that wasn't it. He had a secret for creating jobs. Well, if Paul Ryan would be so kind as to provide 12 million jobs, I could forgive the fact that he and the other House Republicans are completely useless government bureaucrats bringing down excellent salaries with very enviable benefits packages. I think we should pay lawmakers for performance. I suggest that the people should tie Congressional compensation to job creation and a balanced budget, not to war-mongering, job-exporting, and Wall Street money-worshipping. When Mr. Boehner and Mr. Ryan get down to about $35,000/year household income and they are in hock up to their eyeballs with no job security and no employer-sponsored benefits, I think that would be the time to let them go. As Donald Trump would say, "You're fired"! And smiling smugly.
Ageed.That Wall Street....Can be a treachous venue...Most of us never learn a lot about investing and saving to plan for our Futures....Should be a couple of semesters in Highschool just for that purpose, using it towards a Degee or an Econ..Future.
A lot more Americans are still sitting on sideline cash and getting burned along the way...
More then we think.....And I also understand why...It's hard to make an argument about it..
But there are better ways to save and make money besides CDs..Many should research that fact.
But by the time you pay a FA or Broker....To do that, you may not make your money back..
So there within, lies the conundrum...
A Rock and a Hard Place....??..But Americans have gotten scared and the old and some young are saving more percentage wise then they have in Decades..Also not Great for our Economy.
But we all had the Depression to thank in the 30s and now we have the Big Recession from 2007-2009 Spring to thank for it today...
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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