Okay, so they finally passed it. As Obama said, as long as there is one second left on the clock, they will use that last second. So where do we go from here?
The conventional wisdom is that if the bill passes, the market will rally. However, some counterpoints to consider:
- The market already had a huge rally yesterday in anticipation that a deal was almost definitely going to get done.
- Everybody expects a furious rally. The market rarely does what everybody expects, especially not *when* everybody expects it.
- The deal wasn't, well, that big a deal. *A* bill was passed, but it didn't really do a whole lot to avert the fiscal cliff. Taxes are still going up, though not as much. No changes in the spending cuts have been agreed to at all. The bill only bought time on that, and not all that much time. The House Republicans, largely shut out of this round and left to either rubber stamp the Senate bill or get the blame, will fight tooth and nail on the next phase, and you can bet that it will go down to the last minute again. BOTTOM LINE: There is still a lot of uncertainty left regarding the fiscal cliff, and whatever series of deals gets cobbled together, it will still result in tax increases and spending cuts. The question here isn't whether that's good or bad; either way, it's bearish for stocks.
- There's another debt ceiling dogfight coming, and another potential downgrade for Uncle Sam's credit rating. This fight will have to happen simultaneously with the fight over the sequester, now that they've kicked that can a few feet down the road.
- I believe that we were already in the early stages of a bear market to begin with; stocks haven't been dropping just because of fiscal cliff fears. Earnings have been stalling, and that's what stock values are ultimately all about. Economic indicators lately have been a very mixed bag, and the trends have shown signs that the economy is stalling. The last employment report was "better than expected", but it wasn't really that good (and the market reaction wasn't all that enthusiastic). The number of jobs added was barely above population growth, nothing approaching what's needed to sustain expansion, and the UE rate dropped, but that number really doesn't mean much anymore. The labor participation rate continued to drop, and that's the number that actually counts.
My prediction: The market will open higher tomorrow morning, then sell off. Stocks will close down, and the VIX will shoot back up. If the selloff doesn't happen tomorrow, I'd expect it by the end of the week. No new post-crash highs; the downtrend continues.
Open up, have no idea how much, but there will be short covering so i want to watch it a bit before i close my 4 positions..
I agree that we see a selloff somewhere, but i'll watch the Vix for a bottom for the day. Currently @ 18.02, it could easily sell down to 15.50ish, and i'd be long there for a short term trade..
BUT, you have earnings beginning on 1/8 with Alcoa and if numbers are good, we could be off to the races, even in a run to them...
Longer term, i'd be looking at a much larger Vix option call play as the debt ceiling talks approach, possibly 2-3 weeks out, then deficit talks right there, too. Very volatile.
Want ot get the most out of trades tomorrow, just don't want to risk giving any of it back just to squeeze a few more points. I just don't see it moving up thru the whole day. Like you said, we've already had 23 points baked into this, but short covering could move this up the whole day. Perhaps we help from some momo-pumping algobots to squeeze the life out of them..