Stocks popped on a fiscal cliff deal to extend almost all of the Bush tax-cuts permanently. The new, higher taxes on incomes of $450k a year or more, plus a phasing out of deduction on income exceeding $300k is expected to add $620 Billion in revenue during the next 10 years. It probably won't and the additional revenue for 2013 has already been spent on the "doc fix" for Medicare, and extended unemployment benefits.
Wall Street celebrated the "good news" by pushing the Dow up 2.35%, the S&P 500 2.54%, and the NASDAQ by a touch more than 3%. The thrust put the S&P within striking distance of its 52-week high, but one new high isn't enough in iStock's view. We need confirmation of from the NASDAQ and Dow, too. Otherwise, investors could get ticked into full bull mode right as potential, technical danger reaches a peak.
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All three major indexes need to surpass September's peak; otherwise, a failed rally to new heights could lead to a major sell-off. On the other hand, three-for-three bypassing 52-week highs would be extremely bullish.
Wednesday's action is a little worrisome as the indexes gapped up at the opening bell. Gaps can be strong positives or nasty negatives depending on the next move. At times, gaps come in the form of breakaway, which means the fuse is lit for a bull run. On the tail-side of the coin, if the market struggles to add to gains, odds are the gap will be closed and stocks give up most of the day's advance.
The good news is that investors should know which way the market will go by Friday's closing bell. The run higher should continue as long as the NASDAQ stays above 3,080ish. If the index wiggles and closes too far below 3,080, the gap will likely close to 3,020ish.
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Three economic reports of interest will be released Thursday, ADP's jobs report, Jobless Claims and the FOMC's minutes. ADP's report is a precursor to Friday's Employment Situation report. Economists anticipate 150,000 new jobs were created in December. The trend has been flat around 150,000, but we think the range of estimates creates room for an upside surprise; although, many experts thought the fiscal cliff dance may have hampered hiring. We think not.
Holiday week Jobless Claims are almost useless as many states don't forward data and the number is a guesstimate, and on which side do you expect the federal government to err? iStock believes the number will be less than the consensus of 363,000.
Finally, at 2 pm EST, the FOMC's minutes will be released. Wall Street will pour through the notes for clues on the Fed's next move. Hint – it will be print, print, print and zero interest rates for as long as possible or until Yahoo's Macke can no longer get a 60" flat screen with a smile.