Fiscal Cliff Is Becoming a Reality?

The Republican Speaker cancelled a vote on ‘Plan B’ and the futures are down nearly 1.5% heading into the trading day. The fear of a deal not getting done is the issue everyone has discussed and the markets will start selling at the open. The challenge is the unknown and the uncertainty of what this will mean for the economy is why stocks are falling. Thus, we don’t sit by and watch we actively manage our money. The stops on positions have to be adjusted heading into the trading day and exits taken on higher risk positions. You can refer to all the model pages for specifics on each position.

The leaders in Washington may very well do something starting on Wednesday to rectify this situation, but with Congress adjourning until after Christmas, the speculation frenzy is in control of trading and that isn’t the best place to be. Uncertainty is the worst enemy of the financial markets as they have a tendency to jump to the work case scenario quickly and then scatter relative to opinions. Thus, our opinion is to raise cash, focus on the outcome and avoid the worst case scenario. We can always buy stocks back when the clarity returns.

Last night on the Webinar we discussed money management and the importance of managing positions relative a defined strategy and objective. Today is an example of an outside event taking place that shapes short term market direction. The logical thing is to respect our stops lock is some short term profits and take some short term losses. Let the emotions of the situation pass and rebuild our positions as clarity returns. While it would seem we should establish short positions and jump on the negative band wagon, we will be patient and see how the day unfolds. If the downside is the direction to play it will set up accordingly and we will post the opportunities to the Watch List.

If you remember on Monday the Watch List for the week was short positions. But, we had two strong moves to the upside taking out resistance on the major indexes on Monday and Tuesday. That momentum has now shifted the other direction based on the opposite opinion towards the fiscal cliff last night. This is not a market environment to trade. Guessing what the outcome of the fiscal cliff, or what Washington will do will make you go crazy. Thus, I will offer my final piece of advise for the day… Take your stops if they are hit (no matter how painful), measure as best you can the risk going forward, adjust stop on remaining positions to the risk level you are willing to accept now, take a deep breath and go to the mall. It will be worse at the mall and it will take your mind off the stupidity that is Washington.

I will post later today an update relative to the days trading events and how we will approach this going forward. I, like you, want to see how this going to unfold in the early trading. We can’t control what they (Washington) or others will do, but we can control what we will do. Be patient, be focused, be disciplined and act decisively.

I want to wish everyone a very Happy Holiday Season! Take some time to spend with those you love, avoid those who cause you stress, and relax for the new year… You are going to need your strength.