THE FISCAL CLIFF: A RACE AGAINST TIME AND PRICE

MrTopStep.com

View photo

.

 Chart by DailyFX

The Pit Bull pointed something out late in the day last Thursday. He said that it was very unusual to have a TRIN reading of 64 with the S&P going down. While there was a nice little bounce off the lows late Thursday, it was not until Friday that we actually got the answer to the issue the Pit Bull raised.

I knew something was up when Mike from PrincetonTrader hit me up on the chat Friday saying that the low in the S&P was in. That took me right back to the Pit Bull’s question. The TRIN, also known as the Arms Index, is just one of the things the Pit Bull has taught me to follow. The TRIN shows shifts in the price and volume, and when he pointed it out the SPZ was making new, late in the day lows.. We know that’s not the whole story, but when you see a higher TRIN reading like that and the stock market is going down, it does indicate a shift from selling to buying.

There have been a lot of turning points after big selloffs/corrections. The markets have rallied after almost every major stock market event. They rallied after the 1987 crash, the 1999-2000 tech bubble, Y2K, 9-11, Gulf Wars 1 and 2, the subprime crisis and most recently the micro crash (the flash crash). If you stuck your neck out during the big selloffs and bought stock, you got paid. All these events turned out to be buying opportunities. With the S&P 500 down over 5% in the last 7 sessions, Friday's rally was not enough to offset the week’s -1.5% loss. The immediate reaction to the headlines that Washington was working on a compromise was a quick rally in the S&P futures. After the high the ESZ started to sell off again as many traders thought it was premature to think that the government can come up with a solution that makes everyone happy.

Short on time: While Congress will be back in session next week, time is running short. Assuming everyone is back to work next Monday, there are 5 total days left in November and with the congressional calendar showing Congress breaks for the Christmas holiday on Dec. 17 and doesn’t return until 2013, that means there are 16 days including the weekend for the government to come up with some viable solutions to avoiding the fiscal cliff. That means the government has 21 total days to clean this up. Bespoke Investment points out that investors have been selling the year’s winners. Apple is down 25% from its $700 high, General Electric is down 14% and Google is off 16% from its 2012 high. We don't think this is over yet, but we do think a compromise is under way. We just wonder if it’s going to be enough to save the S&P from another downgrade.

Danny Riley is a 34-year veteran of the trading floor. He has helped run one of the largest S&P desks on the floor of the CME Group since 1985.

Our view:
It looks like the government is in a hurry to get things fixed. The current situation mirrors the fight to raise the debt ceiling that led to a downgrade of the United States’ top credit rating, in July of 2011. The way we see it is everyone is short and it’s all buy stops above. While the government is working on a fix, that doesn't mean it’s going to be the one the markets are looking for. While we think there is a potential to move higher, we also do not think the battle over the fiscal cliff is over, meaning that an attack on the downside cannot be ruled out either. Our view is to sell the early rally, then buy weakness. As always, keep an eye on the 10-handle rule

Today’s data:

  • It’s 6:00 a.m. and the ESZ is up 6.5 handles at 1366.25, crude is up 96 cents at 87.88 and the EC is trading 1.2772, up 42 ticks.
  • In Asia 7 out of 11 markets closed higher (Shanghai Comp. + 0.11%, Hang Seng +0.49%)
  • In Europe 9 out of 12 markets are trading higher (CAC +0.40%, DAX +0.02%)
  • Today’s headline: “S&P 500 Futures Advance as US Budget Talks Advance”
  • Economic calendar: Today: Existing home sales, housing market index; earnings from Lowe's, Tyson Foods, Urban Outfitters and Jack in the Box. TUESDAY: Housing starts, Richmond Fed's Lacker speaks, Bernanke speaks at the Econ. Club of New York, Kindle Fire HD w/4G LTE ships and earnings from Hewlett-Packard, Best Buy, Campbell Soup, Chico's, Salesforce.com. WEDNESDAY: Weekly mortgage applications, jobless claims, PMI manufacturing index flash, consumer sentiment, leading indicators, oil inventories; earnings from Deere . THURSDAY: MARKETS CLOSED; Thanksgiving! - Markets Closed. FRIDAY: Black Friday - NYSE closes at 12:00 CT / CME closes at 12:15pm CT
  • Volume: 2.58mil ESZ and 13.5k SPZ trade
  • Fair value (7 a.m.): S&P -2.75, NASDAQ -1.00

MrTopStep Closing Print Video:http://www.mrtopstep.com/videos/?id=34436  
_____________________________________________________________

Follow us on Twitter @MrTopStep http://twitter.com/mrtopstep

Sign up for our free mailing list at http://mrtopstep.com/ for full report.

DISCLAIMER: The information and data in the following report(s) were obtained from sources considered reliable. Opinions, market data, and recommendations are subject to change at any time. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any commodities or securities. MrTopStep, its officers, directors and its contributors may, in the normal course of business, have position(s) which may or may not agree with the opinions expressed in this report.

 

Rates

View Comments (0)

Recommended for You

  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • $40-Off Limited Time Offer From Norton

    Award-winning PC protection that doesn't slow you down. Easy installation & money-back guarantee. Download today with our $40-off limited time offer.

    AdChoicesNorton by SymantecSponsored
  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • "The Retiree Next Door": How successful retirees stretch their savings

    "The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and

    Yahoo Finance
  • CNBC Anchor Calls Out Fed-Hater Bill Fleckenstein In Startling Shouting Match

    CNBC Bill Fleckenstein of Fleckenstein Capital appeared on CNBC's Futures Now program on Tuesday. Futures Now host Jackie DeAngelis came out swinging, asking Fleckenstein right at the top if he was willing to admit that he had misunderstood monetary policy. Sounding taken aback, Fleckenstein…

    Business Insider
  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • Beanie Babies creator's sentence debated in court

    Beanie Babies creator's sentence debated in court CHICAGO (AP) — Federal prosecutors seeking to put the billionaire creator of Beanie Babies in prison for hiding millions in Swiss bank accounts told appellate court judges Wednesday that the toymaker's sentence of probation threatens to erode the…

    Associated Press
  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

    Reuters
  • Fall means cool savings at Sears.com

    Save big on appliances, apparel, lawn and garden, tools and more. For fun in the sun or a project in the shade, start your search at Sears.

    AdChoicesSearsSponsored
  • Gilead Stock Is Falling On These Drug Setbacks

    Gilead Stock Is Falling On These Drug Setbacks Gilead Sciences (GILD) shares are backsliding Wednesday on news that the patient drop-out rate for hepatitis C drug Sovaldi is quadruple that of clinical trials. In addition, the biotech's Phase 2 study results

    Investor's Business Daily
  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • Embraer to sell 50 E-175 jets to Republic in $2.1 billion deal

    Brazil's Embraer SA, the world's third largest commercial planemaker, said on Wednesday it booked a firm order from U.S. The deal, which will be included in Embraer's order book for the third quarter, is valued at $2.1 billion, the planemaker said in a securities filing. The planes will be operated…

    Reuters
  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO

    Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…

    Business Insider
  • 5 Questions That Will Not Get You Hired

    The wrong questions can tank even the best interview. Here are five questions you should never ask in a job interview.

    AdChoicesMonster.comSponsored
  • Play

    What the Fed Meeting Means for Bonds

    Janet Yellen & Co. are expected to hint at their timetable for raising interest rates. Here's how investors should prepare ahead of the meeting.

    WSJ Live
  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.
  • Gold loses luster on Fed; Barclays cuts forecast

    Barclays cuts gold forecasts, sees increasingly bearish backdrop Bloomberg MA MB MC MD ME SAN FRANCISCO (MarketWatch) — Gold prices dipped Wednesday on concerns about a stronger dollar ahead of the Federal Reserve policy statement and in response to Barclays lowering its gold forecast.

    MarketWatch
  • Romney-Sized IRAs Scrutinized as Government Studies Taxes

    The preliminary report attaches data to an issue that drew attention during the 2012 presidential campaign, when Republican nominee Mitt Romney reported an IRA worth $20 million to $102 million. Senate Finance Committee Chairman Ron Wyden said many of these "massive" accounts come from deals…

    Bloomberg
  • Boeing may have outfoxed Musk, but it could have bigger problems

    Elon Musk is arguably one of the greatest entrepreneurial minds of the 21st Century, but he was outsized an old school aerospace giant. Boeing won the bulk of NASA’s contract for a space taxi.  One of the other companies vying for the deal is SpaceX, the company headed by Tesla’s Musk, will get a…

    Talking Numbers
  • 6 Things Debt Collectors Wish You Knew

    The work debt collectors do is not popular, and has become increasingly derided by those who don’t like what we do or simply don’t know the facts about debt collection. Too often, debt collection is painted with a broad brush to create a portrait that isn’t accurate, and doesn’t properly educate…

    Credit.com
  • American Express® Cards

    Earn Cash Back, Travel, or Points. Find the Card That's Right For You!

    AdChoicesAmerican Express®Sponsored
  • The Government Keeps Helping People Buy Failing Cold Stone Creamerys

    Would you loan someone money to buy a Cold Stone Creamery franchise if you knew that more than a quarter of those loans default? Over the last decade, franchisees in the Cold Stone Creamery ice cream chain defaulted on 29 percent of working-capital loans backed by the government, costing taxpayers…

    BusinessWeek