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Congress Tries to Push Santa off the Fiscal Cliff


Will the failure of "Plan B" crush the bulls' hopes for a Santa rally?


The Dow Jones Industrials (INDEXDJX:.DJI) is in a slightly different position than SPX, and has recently completed a 3-wave rally. This is likely a tipping point here, and bulls do need a new high to turn this into an impulsive five-wave rally (to indicate the larger trend is up). Trade below the wave 1 high would suggest a completed ABC corrective rally (thus suggesting new lows beneath the November print lows).

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I'm not ready to capitulate the bull case based on a news item, even one of this magnitude; I'm simply alert to the reality that the bear case could very well gain traction in the coming sessions. It's going to be up to the market to point the way, but there are charts such as the Philadelphia Bank Index (INDEXDJX:BKX), which will continue to look quite bullish, even with a decent drop at the open.

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In conclusion, the fiscal cliff may very well end up wrecking the bulls hopes here, but that's not a given yet. We're simply going to have to see how the cash market responds. From a chart perspective, the 13,010 level on INDU and the 1411 level on SPX are the first levels where things start shifting into the bears' favor. This market has been, and remains, a treacherous environment; trade safe.

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No positions in stocks mentioned.
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