Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Congress Tries to Push Santa off the Fiscal Cliff


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

MINYANVILLE ORIGINAL Last night was an interesting night to be a futures trader. Congress announced they didn't have enough votes for "Plan B" to avert the fiscal cliff, and the E-mini S&P futures (ES) promptly dove 50 points into limit down. As of the time of this writing, ES is trading about 20 points in the red.

Congress has announced they're now going to do some work on Plan C, which stands for Christmas, and are thus headed home for a much-deserved holiday break after yet another grueling week of endless yapping.

Last night, even though Congress people were fleeing the hill like ants, I managed to corner one on his way out the door. He agreed to a brief interview, on the condition that I allowed him to remain anonymous. I acquiesced, and asked what the next plan was.

He replied, "A year ago, we coordinated with the White House and worked out a fool-proof fallback plan to avert the fiscal cliff. We'll be implementing that plan immediately." Excited, I followed up and asked for more detail. "It's really quite simple," he replied, "According to the Mayans, the world is supposed to end today -- so we figured, why bother with budgets? We're only sad that we didn't spend more." When I asked what the plan was in the event that the world didn't end, the Congressman smiled vacantly and edged rapidly out of the room.

I plan to follow up on this if we're all still here tomorrow.

The question now is whether this fiscal cliff plan failure will this preclude the Santa rally I've been expecting, and the answer is: I don't know yet. I do know that the cash charts can tolerate a drop in the ballpark of the current futures levels, and still maintain their bullish bias. In fact, a move such as that would be completely reasonable, as shown on the S&P 500 (INDEXSP:.INX) chart below:

Click to enlarge

I am, in fact, still inclined to give bulls a slight edge, but the real questions won't be answered until we see how the cash market reacts to this news. I will add that it's a little bit bothersome that this happened right after my November target zone was reached, as target zones are also higher-probability reversal zones.

Click to enlarge

The SPX bearish wave count is still alive and well, even though I began discounting it back in November. The SPX structure appears to pivot on the 1411 price point.

Click to enlarge

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).

Click to enlarge

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.

Click to enlarge

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.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos