Happy New Year! The fiscal deal to increase revenue and not reduce spending passes… surprise, surprise. You can read the deal all over the news and I am not going to get into the details of the bill passed by Congress, but the key issue facing the financial markets is the debt ceiling which we hit yesterday. Thus, the arguments and discussion on spending cuts is going to continue. That translates into uncertainty again and it will return as lawmakers and the White House determine how to approach the cuts. Today however, the rally is set to continue on Wall Street. How much and how long is yet to be determined. I am still looking at all the details surrounding the outlook and I am leaning to the downside after a relief rally. We will see how the day unfolds along with the details.
The early indications of regaining the uptrend after the break last Friday are good at this point. The optimism from traders and investors is a result of the ability to trade with some clarity for now. But… as I stated above the debt ceiling issues are still to be negotiated and that could put a cloud back over the market. I don’t want to speculate on the outcome, but we have to be aware of what is on the horizon.
We start the new year with a clean slate as we hit stops on the balance of our positions between Friday’s downside move and Monday’s upside move. I will be updating the tables today based on what the outlook is and the charts disclose. We are looking at plays in both directions going forward. The rally will benefit the leadership of financials, basic materials and consumer services. Looking at the charts we are in a similar position to that of December 17th. The markets want to move higher and potentially challenge the previous highs. We will take what it gives short term and then respect the risk of the current environment.
The downside issues are in consumer staples, utilities and healthcare. If they bounce along with the broad market that is a positive, but the downside risk remains in the sectors going forward. Thus, we may look at short plays within these sectors as it unfolds.
As I stated in my notes over the last week, my outlook for 2013 is volatility. We ended the year on a downward news event and we are starting the new year on an up note of another news event. That theme is going to continue in 2013 from my view, and our trading approach will have to reflect the sentiment of the market in order to capture what the market has to give. We will take it one day at a time, and today is the first day of the new year. Make it a happy one.