SPY to Test Short-Term Support after Fiscal Cliff Deal Sours

And now back to the grind. The pols have truly outdone themselves on this one. After keeping the nation on the brink for weeks, the deal finally turned sour and we are left with another last second push between Christmas and New Year. The markets are clearly not impressed because the S&P 500 futures is down over 15 points. Money is moving into relative safety as Treasuries and the Dollar rise. Going over the fiscal cliff would be quite positive for Treasuries because it would drastically improve the debt situation. Of course, going over the cliff would be bearish for stocks because GDP would take a hit. This is why stocks are reacting so negatively. Truth be told, I have no idea how this will pan out. I thought there would be a last minute deal and the stock market priced this in with an advance the last few weeks. Now we are looking at the prospects of a last second deal, if any. The stock market is quickly making an adjustment before the Christmas holiday hits. Trading is going to slow and this will further exasperate volatility. Buying pressure is likely to dry up without some sort of deal in the works and this could keep further pressure on stock prices. Of course, stocks could surge if a deal is reached late next week. Time is fleeting and madness takes its toll, but there is still a window because the Senate reconvenes on Thursday, December 27th. House members are on 48 hour standby, which means we will know if they are called back to Washington to vote. The chart below shows what a fiscal cliff deal looks like. Stocks, oil and the Euro are up sharply over the last five weeks. Conversely, the Dollar, gold and Treasury bonds are down sharply. These trends could reverse if no deal is reached.









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Key Reports and Events:   
   
Fri - Dec 21 - 08:30 - Personal Income & Spending
Fri - Dec 21 - 08:30 - Durable Good Orders    
Fri - Dec 21 - 09:55 - Michigan Sentiment
Thu – Dec 27 – 09:00 – Senate Returns


Charts of Interest: Tuesday and Thursday

This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.