Major US indices finished in red numbers Tuesday after being rattled by bickering over the fiscal cliff. The Dow was hit hardest, dropping 0.7%, while the S&P dropped 0.5%.
When fiscal cliff negotiations began two weeks ago, lawmakers appeared more ready to compromise than previously expected, helping to trigger the rally we saw last week. However, talk is cheap and the squabbling has begun anew. Senate Majority Leader Harry Reid said there was "little progress" towards reaching a deal, while Senate Minority Leader Mitch McConnell urged President Obama to "turn off the campaign." The market turned lower in the afternoon following Reid's comments. Despite the friction, the White House insisted negotiations are on track and the spirited debate is healthy as we draw closer to the "cliff."
Many leading stocks held up well despite the slight market weakness, and one notable former leader put in a constructive day.
Apple (NASDAQ:AAPL) fell 0.8%, but some "filling back" is healthy after a potent rally over the last two weeks. Yesterday's low is the short-term pivot to watch.
Facebook (NASDAQ:FB) finished up 0.8%, recovering from some morning weakness. The gap was almost filled at $26.73, and I wouldn't be surprised to see that price level reached in the coming days. Now is not a time to chase FB, but rather trim and trail any existing position.
Google (NASDAQ:GOOG) showed surprising relative strength after being stuck in the mud over the past month. The stock has continued to bleed lower after its big leaked earnings miss, but held its 200-day moving average on the November 16 reversal. Today, GOOG showed relative strength to the market in the morning, giving traders a clue that it could be ready to bounce. The stock surged most of the day until Harry Reid's pessimistic fiscal cliff comments weighed on the market, and finished with a 1.45% gain.
While the fiscal cliff negotiations are being blamed for some sporadic weakness over the past two days, I think the market is simply in need of some rest after a strong bounce since the November 16 reversal. As prudent technical traders we do not chase exuberance. The "easy money" on this bounce may be off the table for now, and it’s time to wait for the next calculated set-up.
Scott Redler is long FB, GOOG, SLV, LEN, LULU, BAC. Short SPY.