Making Money Alert: A Fiscal Stalemate and a Browning Apple

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I know you probably are tired of hearing about how the fiscal cliff issue is dominating the equity markets right now, but the fact is that this issue is the proverbial 800-pound gorilla in the room. Until we see a resolution to this issue, traders are going to continue to be very nervous.

In last week’s trading, we saw slight gains in the major averages due to optimism that there will be a resolution to the fiscal cliff in time to avoid the automatic federal spending cuts and the termination of the Bush tax cuts.

That optimism still is present, and I think it is one reason for the gains we saw in today’s trading. However, in terms of a political resolution to this issue, it appears that the two sides have reached a stalemate of sorts. The president continues to insist on an increase in the tax rates paid by the wealthiest Americans, while Republicans in the House want to see at least some movement to curb federal spending.

Whichever side you are on in this issue, I think it is safe to say that neither the president nor House Republicans are really tackling the deficit issues head on, as there hasn’t been much mention at all of entitlement reform. This area of spending is where the real cuts and/or reform need to be made. Until the parties address it, we are going to continue having debates about deficits and taxes — and unfortunately, there is likely to be more class warfare, too.

In the meantime, stocks in the S&P 500 continue to trade above the long-term, 200-day moving average, but below the short-term, 50-day average.

We are close to breaking above short-term technical resistance. But until we do, I am keeping any bullish tendencies in check. One reason for my hesitation about being too bullish here, and that’s even if we get a quick resolution to the fiscal cliff situation, is due to the sell-off in market leaders such as Apple.

The chart below shows the decline in the personal technology giant’s shares since the all-time high hit in September. And despite a recent attempt to fight its way back to the 200-day average, Apple has failed to do so yet again.

Shares are down nearly 5% in today’s trading, and that’s not a good sign for the stock, for the technology sector, for the NASDAQ and for so many investors who own this widely held stock.

I recommend keeping a very close watch on this bellwether, as it will give us a good sense of how the sector is likely to trade going forward. If we see more browning in this Apple, it could bring the bears back to Wall Street.

The Wisdom of Knowing You Can Do It

“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.”

–Archimedes

The great thinker and scientist of the classical antiquity period was a man of immense talent and knowledge. Here, he gives us some wisdom about what we can accomplish if we are motivated, and if we choose the right tools. This lesson is not just for investing, but for any pursuit in life. You see, motivation, plus the proper tools, equals success. Yet one absent the other is bound to result in mediocrity, at best, and failure at worst.

To read my e-letter from last week, please click here.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Click here to ask Doug.

To the best within us,

Doug Fabian