In spite of how the week ended, it was a positive week for the market and Friday’s selloff was fairly modest if that is what a Fiscal Cliff breakdown looks like.
For all the drama on Friday, market still had a good week, finishing higher by 1.2%. We hit 1450 on Tuesday, fell to 1422 on Friday, and closed the week at 1430. Volume swelled in part due to options expiration.
This week markets notched a higher-high, breaking above the early November pre-election high and snapped a trend of lower-highs and lower-lows dating back to September. The weekly chart shows the uptrend is still intact in spite of all the pessimistic headlines flying around. Taking a step back and looking at weekly charts helps eliminate the daily noise and whipsaws that mislead so many traders.
Markets remain skittish and everyone is wary of the next breakdown, but it just hasn’t come. The most we’ve seen is a 20-point selloff. No doubt the fear of a selloff is preventing the selloff. Many of the potential sellers are already out of the market and the current crop of owners are comfortable holding in these uncertain markets. This confidence and cool hand by current owners is preventing a wave of selling to flood the markets and pressure prices.
Friday’s apparent collapse of Fiscal Cliff talks left many traders expecting us to cross into 2013 without a deal. For such a widely feared event, the market’s reaction was fairly constrained. This shows the market is not ready to plunge into the abyss and defeats a major pillar of the bear’s argument.
Some of the worst news was realized and we didn’t see a wave of panicked selling consume the market. In this case, the elevated anxiety and lack of complacency was a buffer that prevented the very thing the market feared. This is just another example of how you can safely ignore what everyone is talking about. No doubt we could see further weakness in the light holiday week, but barring a collapse of the market, stocks look attractive here for both short-term and long-term investors.
AAPL had a nice week, also finishing in the green by 1.9%. Weekly volume fell off, which is a good thing at this point because it shows a lot of the emotional trade is winding down. The stock might rally modestly into the January earnings report and that will be the next catalyst either up or down. Given the widely divergent views on the stock it is hard to imagine the stock not reacting to earnings as it proves one side right and the other side wrong.
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.