On Thursday we discussed the issue of the fiscal cliff and how the charts were reacting in response. The late day rally on scheduled talks was interesting as there is no real solution on the table to even negotiate at this point. Thus, the futures and the market are poised to drop at the open today. Take a look at the notes from yesterday and the downside applies equally today. The meeting at the White House will be the most influential on direction. But, again I state any trades relative to the outcome of the fiscal cliff talks is essentially betting or red or black at the roulette table in Vegas. The important action is to hedge or protect your portfolio short term against the impact of talks.
The sideline issue in the news yesterday was the farm bill which is set to expire on 12/31 as well, and it was reported that the price of milk could rise as much as $3 per gallon. Talk about your new taxes! With only three days left the approach by those in Washington has been nothing short of amazing. There are not enough words to describe this issue and the insanity that has accompanied the process. I have nothing more to say that is worthwhile.
NASDAQ index needs to hold 2965 support on the close. See yesterday’s notes on the VXN, Volatility index for the Composite Index and the short play for PSQ in relationship to the downside.
S&P 500 index needs to hold 1400 support on the close, but 1405 or higher would be better. VIX, Volatility Index is jumping higher (see notes from yesterday) showing the rise in fear for investors. The short play is outlined as well for SH.
Oil is rising on speculation relative to increased demand. The trade opportunity is set up on a break higher. See the models for the play, but this is still a questionable move fundamentally for the commodity. The energy stocks have not responded in kind and that is a warning as well.
Gold is in the news as well, but not seeing the upside. Watch the miners for clue on the upside. I like the longer term outlook for the mining stocks in the precious metals. The base metals are moving as well and we have them on a watch list heading into the new year.
Approach the trading day with extreme caution as the announcements and speculation will be all over the headlines along with reactions. Don’t over trade and most importantly find your discipline. I would rather make up for a lost opportunity at this point than lost principle.