Last chance for cliff diving

As we enter the last trading day of the year we have still not resolved the fiscal cliff, and after the comments last night from Washington it doesn’t look like it is going to happen. Stocks are trading well in light of the news, but I wouldn’t count on that lasting. Some analyst are making reference to ground hog day as we repeat the need for a resolution over and over every day, and end each day with nothing changing. It is a good analogy, but eventually the results of the tax and fiscal changes for 2013 will have an impact. The question is when and how much.

With that in mind we turn to 2013 and what the new year holds in store for investors. From my view it is more of the same. There will be swings in momentum and sentiment based on the events of the time. As we experienced in 2012, there were strong periods of growth for the market as economic data improved and the Fed provided liquidity. Equally there were weak periods for stocks when all the doom-and-gloom mounted relative to specific events in the economy. Those same issues will exist in the new year. Washington isn’t going away, even if we agree to spending and tax cuts. The budget issues are not going away, but in realtiy are getting worse as we do nothing to rein in spending. All of that adds up to volatility and opportunity. We learned in 2012 to take what the market gives up or down. The key is to keep your discipline and follow the trends that develop.

As we start the new year the trend is in transition short term. We established a lower low which broke the uptrend off the November low by breaking the December 14th low. If this progresses we will look for the downside plays (See Watch List) and again take what the market gives short term. As far as the longer term trend it remains intact with the November 15th low the key level to hold to keep the uptrend in play. Some of you may not follow trendlines very closely, but they do keep the market in perspective relative to the day-to-day news. Thus, look towards the new year to provide more of the same opportunities on both the upside and the downside. How will the market fare for the entire year? That is a guessing game with too many variables. From where I sit there are plenty of obstacles to jump over and how we address each of them going forward will determine the outcome of the year.

As we end one year and begin another take time to reflect on your trading and what you did well, but equally what you did wrong. Learn from your mistakes and use that knowledge in the new year. I know that one key lesson I have learned this year is to be more patient with my decision making. That includes avoiding the news or at least the sensationalizing of it. Last January my goal was to avoid the media as much as possible. I am happy to say that has been a successful endeavor. A continuation of that goal this year is to be very selective in the research I am willing to read. Thus, avoiding even more reporting and news that influences the thought process. Where is this is taking me… to trust what I know and trade within myself. I am attempting to put that into my notes every day. Focus on the facts, don’t dramatize the events, and keep my personal opinion to myself when it doesn’t impact the decision making in our portfolios or research. Believe me that is going to be hard. But, I want to be a better investor and risk manager, and I am convinced that psychology plays a bigger role than many believe.

I have been doing a lot of research on habits. It is truly fascinating how much of an influence it has on our lives. Thank goodness we have the ability to deal with these habits if we choose to do so. Thus, I am sure I will be sharing more with you as the new year progresses. The markets are closed tomorrow and I will be traveling home. The skiing in Steamboat has been awesome! They had over 32 inches of snow this week! There will be a small update on the day and revised tables to start the year. All updates will resume with video, etc. on Wednesday night.

I want to wish everyone a very Happy New Year and I look forward to what it brings for each and everyone of us.