Is the Fiscal Cliff Calm Brewing Up a Market Storm?

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Fifteen days remain to the fiscal cliff with both sides apparently unwilling to make a deal.

U.S. stocks and ETFs fell on Friday and for the week as the clock clicks steadily towards the fiscal cliff and witching hour on December 31, 2012.

In a volatile week, Apple (NASDAQ:AAPL) fell hard again on Friday, down 3.8% on poor analysts reports and ongoing technical weakness.

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While most market participants still expect a deal between the White House and the House of Representatives, the prospect of going over the cliff grows increasingly likely with each passing day.  The President and House Speaker John Boehner met again this week at the White House but failed again to emerge with a deal in hand.

On My ETF Radar

spy, nysearca:spy, s&p 500, fiscal cliff

In the chart of the S&P 500 (NYSEARCA:SPY) above, we can see how the S&P 500 is stuck at major resistance as it struggles with the fiscal cliff.  The S&P 500 (NYSEARCA:SPY) is just below its 50 day moving average but above the 200 day average and momentum and relative strength are in decline, indicating short term weakness in the U.S. stock market as the fiscal cliff stalemate continues.

apple, aapl, nasdaq:aapl, fiscal cliff hurts apple

The chart of Apple (NASDAQ:AAPL) is particularly ugly as it printed a bearish triangle breakdown on December 14th and now has a downside price objective of $509.  If reached, this price target would be more than 25% from Apple’s (NASDAQ:AAPL) September highs.

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For the week, the Dow Jones Industrial Average (NYSEARCA:DIA) slipped 0.2%, the S&P 500 (NYSEARCA:SPY) slid 0.3% and the Nasdaq Composite (NYSEARCA:QQQ) dropped 0.7%.

In economic news, jobless claims, retail sales and industrial production all improved, along with economic reports from China.

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Specifically, initial jobless claims fell to 343,000, down from 372,000 and beating expectations and retail sales for November advanced 0.3%, just below expectations and well above the previous month’s reading of -0.3% while China’s HSBC initial PMI report came in at 50.9, up from last month and just above the 50 line between expansion and contraction.

In Europe, Greece received its much needed bailout while Germany PMI declined to 46.3, down from 46.8 in November and still below the all important 50 line and in contraction territory.  Europe is officially in recession and the outlook for 2013 shows little hope for improvement.

The Federal Reserve launched “QE4,” another round of asset buying to replace the expiring Operation Twist and pegged its easy money policy to 6.5% unemployment.  Generally speaking, markets yawned and it seems increasingly evident that the impact of the Fed’s monetary policy is in sharp decline.

Next week brings a raft of economic reports including the Empire State Index, Home Builders Index, Housing Starts, existing home sales, GDP revision, Philadelphia Fed, Chicago Fed, personal income and spending, durable goods and the University of Michigan consumer sentiment index.

All of that is important, but the fiscal cliff will retain top billing as the clock continues clicking towards the end of the year.

Bottom line: Sometime soon, the market’s complacency regarding the fiscal cliff could give way to panic if a deal isn’t reached and the prevailing confidence in a positive outcome evaporates.

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John Nyaradi is the author of The ETF Investing Premium Newsletter.

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