Home > Uncategorized > 2012/12/18: Cal-Perspective and S&P rip latest Fiscal Cliff whip into heavy holidays

2012/12/18: Cal-Perspective and S&P rip latest Fiscal Cliff whip into heavy holidays

© 2012 ROHR International, Inc. All International rights reserved.

The weekly Report & Event Calendar is available through the link in the right hand column. This week’s Summary Perspective is also now available. Yet there is also a continuing anomaly in the fundamental influences. And it is not just the weakish global economic data, but also the degree to which the equities are ignoring the potential to plunge off the Fiscal Cliff…

The odd part is the degree to which the press is reporting each new development as if it is a step closer to solution, which they are generally NOT. It is a matter of creative permutations of each sides positions being presented, yet…



…these basically preserve each side’s core position. Not attempting to be too much of a Cassandra, yet it is all starting to feel like July 2011. Yet another phase where “failure is not an option” assumptions still ended in failure. Yet for now, the equities prefer to trade off the more than a bit Pollyannaish headlines, and so be it. The push to a new recent high by the S&P 500 is just a manifestation of how friendly the expectations are for a Fiscal Cliff deal by December 31st in spite of the lack of any real basis for a full compromise.

For example, Democrats are seemingly (the operative term) offering $1 trillion of cuts, yet are still demanding $1.4 trillion revenues. The latter remains anathema to Republicans, and Boehner’s response is to cede the top income tax rate going up to the 39.6% the President has requested… but only on those earning $1 million or more.

In other words, still not allowing a hike on most top earners. The Democrats are now allowing they will accept the top rate on those earning over $400,000 per year. Undoubtedly this will still be rejected by Republicans who prefer to get revenue from sources other than a higher top bracket rate.

Which may be the appropriate response to the fact Democrats spending ‘cuts’ include $200 billion in ‘saved interest’ on not spending more. That is not really a cut of entitlements by anyone’s reckoning… except under the typical Washington DC political class ‘fuzzy math’. None of this is intended as a partisan statement.

Maybe the best sign the two sides are not anywhere near the deal the press seems to keep hallucinating came from Senate Majority Leader Harry Reid. He told his troops yesterday that they should be ready to return to Washington DC on December 26th to continue work on this.

It just seems to us the two sides are much farther apart at present than the mainstream press will allow. That said, will the equities succumb to any lack of meaningful progress by the end of this week? That is anybody’s guess. Might it be another July 2011 situation that only hits if there is no deal by the end of next week? A “failure is not an option” uh, FAILURE? Maybe.

But we will be out on holiday, and anyone with any sense will have risk dialed way down by the end of this week in any event. Fiscal Cliff or not, next week is a two day global trading week!!

That’s right. London and most of Europe are Closed for their extended Christmas holiday on Wednesday. So after Friday it is effectively a five day weekend followed by two trading days into a four day (New Year’s Eve) weekend. How much risk do you really want to carry?  

General Market Observations

The bottom line is that the March S&P 500 future (lead contract as of this Thursday’s Close) pushing back above the 1,399-1,402 resistance on mutual constructive comments three weeks ago is now also above 1,415-18 resistance, including the past two week’s attempted DOWN Closing Price Reversals. No surprise therefore that it has also pushed above the more prominent resistance in the 1,425-30 area once again, the low end of which is now support.

Of note, that higher area was also the pre-election high and Close. Unless it is going to fail back below the 1,425 and 1,415 areas, any near term setbacks are selloffs to support. And in that case, higher resistances in the 1,450 and even 1,460-65 areas are likely to be tested. Which would be classically normal for a market hoping for good news on the Fiscal Cliff. Any failure likely waits until next week or even New Year’s Eve… what a way to run what used to be the world’s single remaining Super Power!


In any event, whether any Fiscal Cliff deal that looks at all meaningful is reached by the end of this week (i.e. allowing time for it to be put into law between Christmas and New Year) will likely be the key to how the markets finish the week. Or at least the assumptions about whether that is still possible (see above.)

And we say ‘markets’ because the direct and inverse intermarket influences seem to be back in force after a time when those relationships were distended and distorted. In particular, after they were able to ignore it for a while into the early part of the month, the govvies do not seem to like the current sustained bid in equities one bit. Even strong sister March Bund future is giving up its key near term 145.20-.00 support, which points toward lower supports in the upper-mid 143.00 area.

Of note, weak sister March Gilt future is now below both its 119.30-.00 support and the lead contract 118.50-.25 area. Already attacking the mid-117.00 support leaves the mid 116.00s as a target if it fails. The same goes for the also somewhat discounted (to December contract levels) March T-note future that is now below 133-00/132-24 support and into the much more significant 132-00/131-16 area. QE-Infinity good for bonds? Always a dubious assertion.

The US Dollar Index has similarly slipped back below the .8000 area, even if the .7915-.7860 area is also its far more critical support. It is also very interesting that EUR/USD rallying above 1.3000 is also now out above 1.3170 even though AUD/USD poking its nose above 1.0450-1.0500 still seems stalled. Not a very strong indication on the Chinese economy in the wake of so much recent upbeat sentiment.

And last but by no means least, the Japanese yen still appears to have quite a bit of long-term vulnerability. USD/JPY above 82.85-83.30 has stalled into next incremental resistance in the 84.00-.50 area on the LDP election victory. However, if it should escape, the next major resistance does not come in until the mid-upper 85.00 area.

Thanks for your interest.

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