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Fiscal Cliff: What to Expect If There's No Deal By Today's Close


Traders should look for a marginal "up" opening followed by attempts to sell stocks off with lower prices due by the bell.

That said, in last Wednesday's Morning Tack I stated, "There were some negative indications in Monday's abbreviated trading session. Most importantly, the Advance/Decline numbers were negative enough to register a short-term 'bear signal' from the McClellan Advance/Decline Oscillator." In Thursday's Tack I wrote, "By Wednesday's closing bell our Short Term Trading Index had registered a 'sell signal' confirming Monday's McClellan A-D signal." Thursday's action turned out to be more of the same with a late session recovery coming on news the House of Representatives would convene this Sunday as hope of a last minute deal sprang eternal. Still, Down Volume for Thursday's session was 70% of total Up/Down volume and our Short-term Trading Index registered another negative signal. On Friday the selling intensified, leaving the SPX resting just above its 1390 – 1400 support level. However, the McClellan Oscillator is now in an oversold position and a Monday plunge, on no "fiscal cliff" deal over the weekend, would leave it about as fully oversold as it ever gets (see chart below). Indeed, last week's "sell sequence" of indicators (as described above) is the typical set-up for a tradable "low."

The call for this week: The American public ought to be chanting the mantra from the 1976 hit movie Network: "I'm mad as hell and I'm not going to take it any more" (you can see that Network clip by clicking here). And I don't care if you are a Democrat, Republican, or Druid -- what has been going on inside the DC Beltway is a disgrace and hurts "We the people." On Friday, because of the shenanigans in DC, the S&P 500 (INDEXSP:.INX) declined from Thursday's close of 1410.70 into a low of 1384.00. Obviously, that should have "cleaned out" all of the stop-loss orders below the 1390 – 1400 support level. That's why early this morning the pre-opening futures are up ~5 points to 1390. If there is no deal by today's close, participants should look for a marginal "up" opening followed by attempts to sell stocks off with lower prices due by the bell. If there is still no deal by Wednesday, that's when the downside washout should be complete. Accordingly, Kamikaze trading types may buy partial positions on weakness today looking to fill-out those trading positions on further weakness Wednesday. Investors, however, should be reading their "buy list" because this feels more like a downside crescendo rather than the beginning of a whole new leg to the downside.
No positions in stocks mentioned.
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