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2013 Should Come in With a Bang


The market is set up for a big move, but seems to be waiting on the fiscal cliff resolution for directional guidance.

MINYANVILLE ORIGINAL Some markets are inherently difficult to predict and trade. They whip up and down, they make higher highs, then they make lower lows, then they reverse. They shake everyone out of both sides of the trade -- and then, after they've messed with enough players, they run. This is one of those markets, and it's gearing up to run. That pattern is such that it probably shook out many bears right near the top, and has since shaken out many bulls. Now it's almost time for it to pick a direction.

For the past week, I've noted that the market had reached an inflection point -- and while the market's reaction to an inflection point isn't always predictable in advance, these points do represent a challenge to the market, and thus always open up the potential for a change of trend. The bears managed to seize control at that inflection point, and have not yet let up their chokehold since.

Meanwhile, Congress has only had a year to work out the fiscal cliff dilemma, so of course here we are in the eleventh hour, still trying to figure out what to do about it. In alignment with this uncertainty, it's interesting the position the market has placed itself in -- it hasn't locked-in the bearish count, and it hasn't locked-in the bullish count. It's still floating in inflection point limbo, and it seems to be waiting for the starting gun to fire. One thing that does seem clear is that it's going to make a large intermediate move very soon -- but the market seems uncertain on the direction yet. When the market commits, I'll follow suit.

Everyone seems to be looking at how bearish it would be if the fiscal cliff deal doesn't get done -- but what happens if it does?

There are still mixed signals in the charts, and the daily chart of the Dow Jones Industrials (INDEXDJX:.DJI) helps illustrate the challenge.

Click to enlarge

Zooming in on the INDU chart, we can see that the rally since November is only three-waves so far, but it has not yet knocked-out the critical low to lock-in the rally as corrective (corrective moves are always expected to be fully retraced).

Click to enlarge
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No positions in stocks mentioned.
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