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It is bad enough that people in the United States are living through one of the most severe economic downturns since the 1929 crash, but what Congress and the president have done with putting off a deal on the fiscal cliff is just despicable. 

A Street guy’s view
Not that it helped me, but I caught on to the beginning of the subprime / credit crisis long before it was being talked about. How did I know? Because I have been working with one of the top independent traders in the world, Marty “The Pit Bull” Schwartz, for the last 24 years. In late 2006 / early 2007 I had a few conversations with the PitBull where I knew he was stressed. His voice changes when he talks about such serious matters and it was during one of those phone conversations that I knew something bad was coming. He told me that there was “rotten wood floating around in the bank and brokerage stocks.”  He said the banks and brokerage stocks were the heart and soul of the U.S. economy.  As the S&P started to sell off and more information came to the surface, he told me there would be an enormous shift of wealth out of the United States. For my part I stayed bearish the S&P until it got down to the 666 lows, where we came out saying we thought there was a big bounce coming. We were right, but once the S&P rallied 150 handes we started saying the rally was over ... but it kept going up. Back then the markets were trading around a great amount of uncertainty, very much like we have today.


Renewed talks

Last night it was revealed that the White House and the Republican Congress have resumed low-level talks on breaking the stalemate over the fiscal cliff but will not give any details of the meetings.  After holding out for the last few weeks, it appears that a call made by the President to John Boehner got both sides to kick-start the talks again. White House spokesman Jay Carney told reporters that “lines of communication remain open.” Additionally, when Boehner's spokesman was asked the same question, he answered by saying the “lines of communication are open.”  Based on how things have gone up to now, anything considered a breakthrough would be considered an encouraging sign.

Flushing the bears out:
All the most recent ups and downs in the S&P have made the trade very confusing. When the ESZ sells off it looks like the markets can keep going down. When it starts going up and just when things look good, the ESZ goes back down. Yes, there have been some good day trades, but if you're a trend follower you're probably not liking the trade very much. The important part of this is when an agreement to avoid the cliff is reached, the S&P will take off to the upside. But with 12 trading days until Christmas, we highly doubt the ESZ will go straight up. In fact, it could be a case of sell the news, get everyone short again and then do the Santa Claus  rally.

This morning’s jobs numbers should supply enough action in the early going, so let’s get in and get out and call it a week. See you on the MrTopStep chat ...

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:
The Obama administration and Congress talking doesn't mean the fiscal cliff has been averted. It means they are trying to get a deal. That said, this morning is all about the jobs numbers. This is going to be a hard one to call. Ideally, I want to get to the floor and check out the price action before jumping in. What I will do is remind everyone about the MrTopStep rule called “Counter Trend Friday” (see Trading Rules 101). As always, keep an eye on the 10-handle rule and please use stops when trading futures.

Today’s data:

  • It’s 7 a.m. and the SPZ is trading 1409, down 4 handles; crude is down 31 cents at 85.95; and the euro is down 59 pips at 1.2905.
  • In Asia 7 out of 11 markets closed higher (Shanghai Comp -0.26%, Hang Seng -0.32%).
  • In Europe 10 out of 12 markets are trading modestly lower (CAC-0.20%, DAX -0.15%).
  • Today’s headline: “S&P 500 Futures Holding Ahead of US Jobs Report”
  • Economic calendar: Today: Employment numbers, consumer sentiment and consumer credit
  • Globex volume: 1.38mil ESZ and 8k SPZ trade
  • Fair value: S&P -3.75, NASDAQ -5.75


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