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Futures Turn Positive, DC May Get a Band-Aid

Scott Redler

U.S. stock futures point to a slightly higher open as trading resumes following the Christmas holiday. Holiday sales came in light of expectations, but so far the market is shrugging it off. The unresolved fiscal cliff remains a weight on the market, and urgency will only increase as time runs nigh on 2012. After House Speaker John Boehner's Plan B bill fell flat last week, his support was undermined and it was left to Senate leaders and President Barack Obama to iron out a deal.

The president is seeking to push through a partial budget deal that would extend tax cuts for those making less than $250,000 per year, which would take care of a significant portion of the cliff. Republicans are hesitant to allow that unanimous part of the deal to go through without other concessions from Democrats.

The S&P continues to be under pressure, although a higher open today would be a welcome sign for bulls. The next support pivot to watch on the S&P 500 ETF (SPY) is $141.88. While signs are not encouraging for a budget deal, volume and volatility could remain light through the end of the holiday-shortened week. Look for the real reaction to the fiscal cliff to come after the New Year, but that doesn't mean a clear lack of progress may not weigh on the proceedings.

The financials remain a source of strength in the market and are helping the indices remain intact. The bank stocks that have underperformed for much of the last few years are now leading: Bank of America (BAC) and Citigroup (NYSE:C). The former sector leaders--JPMorgan (JPM) and Goldman Sachs (GS)--are lagging a bit but look like they could have more upside. Credit card companies Mastercard (MA) and Visa (NYSE:V) were two of the strongest big cap stocks in the market in 2012, and there is no reason to believe that won't continue next year.

Apple (AAPL) still has a lot to prove after its recent weakness. If $510.24 holds, perhaps bulls can make the case that we are seeing higher lows, but the stock still feels decidedly heavy. Let's see if holiday sales numbers for the company impress enough to give it a boost, or will they regret the introduction of the iPad mini.

Amazon (AMZN) and Google (GOOG) are more compelling longs right now, in my opinion. Amazon has been trending higher, but may need some rest before its next breakout. Still, with some patience the stock looks poised for a strong 2013. Google had a roller coaster year after Scott Redler named it his favorite chart pattern of 2012 at the end of 2011, but looks to be repairing its chart well.
Overall, traders view the current environment as having unfavorable risk-reward parameters. If you choose to actively trade during this holiday period, we believe it is best to be extremely selective, pare down size of trades, and perhaps have shorter holding periods. In choppy, headline driven environments, we feel you need to have either a long-term or ultra short-term perspective.

Want to get or give the gift of trading education for the holidays? You can still get a $500 credit towards any of the T3Live Education Courses if you act before the end of the year.

*DISCLOSURES: Scott Redler is long FB, BAC, YHOO, WFC, XHB, AAPL, TASR. Short SPY.