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Market Tumbles on Fiscal Cliff, Mid East Tensions

John Darsie

It was another rough day for stocks, with the Dow and S&P finishing down 1.4%. The market opened higher, but immediately headed lower after the opening bell rang. The indices consolidated morning losses around lunch time before plunging lower again around 2pm into the close. After hovering near its 200-day moving average for several days, the S&P 500 broke hard away from it today. When an index comes into a major level like the 200-day, technical traders like to see a strong bounce, and we talked on Off the Charts about how the longer we stay near that level, the higher the likelihood is we get another potent down move.

Worries about the fiscal cliff continue to dominate the rhetoric. While each side of the aisle is at least hinting at some willingness to negotiate, they remain far apart on how to tackle the looming spending cuts and tax increases that threaten to plunge the US economy back into recession. The Democrats want to bridge the gap with tax revenue increases as well as spending cuts, while Republicans want no new taxes. The President has increased the amount of tax revenue he would like to generate from taxes on the top 2% of the country to $1.6 trillion, perhaps setting up a bargain to get to his actual number.

Adding to the jitters in the market today were the escalating conflicts in the Middle East. Israel killed Hamas' military leader in a targeted air-strike, and the militant group that controls Gaza has promised swift and brutal retaliation. Israel is stepping up its campaign to rid Gaza of militant groups after a steady increase in the number of rockets entering Israel from neighboring settlements, and the increase in hostilities is not sitting well with the Muslim world. Crude oil prices spiked more than 1% on the news.

Facebook (FB) saw 800 million news shares hit the open market today after the expiration of the largest IPO lock-up period. Many traders opined the stock price would plummet due to a flood of new supply, but forces-that-be pushed the stock sharply higher off the open, triggering a short squeeze. After a strong push in the first half hour the stock seemed to run out of steam, but in the afternoon it broke back above the morning high to finish the day up 12.6%.

Abercrombie & Fitch (ANF) finished the day with a monster 34.5% gain after a strong earnings report. The stock price was down more than 60% from 52-week higher heading into the report, but strong international sales growth helped trigger an impressive bounce.

Cisco (CSCO) was not as impressive during the session as ANF, but still held most of its earnings gap from this morning. The strong report from CSCO last night was a rare bright in what has become a beaten down tech sector. The stock finished with a 4.8% gain on the day, and traders will be watching to see how it acts in the next few days.

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*DISCLOSURES: John Darsie has no positions