The relief rally appears to be over as the market has more obstacles to face over the coming few months.
The New Year's party for the market ended as the major indices finished with narrow losses Thursday. Stocks finished with strong gains on the last day of 2012 and first trading day of 2013 following a last-hour fiscal cliff (partial) deal, but came into the day a little bit extended to the upside and in need of rest.
The S&P opened marginally lower this morning but drifted into positive territory by lunch time, until the afternoon Fed minutes rained on the parade. The minutes released at 2pm ET spooked the market a bit as several FOMC members intimated that QE will he concluded sometime in 2013. The statements came with the caveat that Fed action will be dependent on improvement in the labor market, which has shown few signs of rapid recovery.
Some are a little upset the punch bowl (QE) may be taken away, but at some point the training wheels have to come off. For a little perspective, most market indices are at or close to five-year highs--and less than 10% off all-time highs so interest rates can’t be held down forever. This could also mean the economy is getting better, which will be deemed good news at some point.
The low of the day in the S&P 500 ETF (NYSE:SPY) was $45.34 , and the gap starts at $144.77, so put today’s down move in perspective. After the bounce off lows we saw in the last five minutes of today's session, it will now be worthwhile to watch today's low as a pivot. There was a micro push-through failure as we traded above SPY $146.15 and couldn’t hold that level. Profits could have been booked after the three-day move based on that type of pattern.
Apple (NASDAQ:AAPL) staged an impressive two-day bounce surrounding New Year's but has been heavy during the past two sessions following yesterday's higher open. Today AAPL fell 1.3%, briefly piercing below but ultimately closing a hair above yesterday's low. For the former market leader to reestablish bullish composure, I believe it needs to hold yesterday's gap. Investors are asking: Which Apple will we see in 2013?
Gold (NYSE:GLD) and Silver (NYSE:GLD) will also be interesting to watch over the next few days. The Fed minutes this afternoon weighed on precious metals more than stocks, and an end to QE would seem to have a negative impact on the group. GLD and SLV finished the day down 1.2% and 2.6%, respectively. If GLD gets more downside, the intermediate-term level to watch would be the low from 12/20 of $158.39.
Solar stocks, a group we didn't pay much attention to in 2012, woke up in a big way today thanks to Warren Buffet. A company owned by the famous investor, MidAmerican, Solar bought two solar projects from San Jose, CA-based SunPower Corporation (NASDAQ:SPWR) that will create the largest permitted solar photovoltaic power development in the world. SPWR finished the day up 48%. The bigger stock in the sector that we trade more often, First Solar (NASDAQ:FSLR), finished up 7.6%.
I don’t think it’s game over, just a spot to measure your risk and time frame. The fiscal cliff deal was only a band-aid, and the two-day bounce was largely just a relief rally, so there are still obstacles for the market to face over the next two months with the debt ceiling and spending cuts. I remain generally bullish on the market for 2013, but you still need to know how to navigate the speed bumps along the way in order to keep your vehicle in service.