Sitting Pretty

 | Nov 12, 2012 | 8:25 AM EST  | Comments
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We have to continually be jumping off cliffs and developing our wings on the way down. --Kurt Vonnegut

After an ugly response last week to the election results and the fiscal-cliff worries, the big question this week is whether the market can find its footing for a bounce. We are going to hear endlessly about the fiscal cliff, but even if you are optimistic about a potential deal, you have to be delusional to anticipate that the politicians are going to come to an agreement quickly.

The likelihood is that a deal will be made to avoid triggering the dire consequences of the fiscal cliff, but the nature of the negotiations will be brinkmanship. The politicians simply won't compromise until they absolutely have to since there is the hope that the other side will soften their stance first and provide a better compromise.

We are going to be sick of hearing the term "fiscal cliff" by the time this crisis is over, but we have no choice but to keep it in the forefront of our minds. It is going to be a source of uncertainty, which will be a problem for the market, but you can be sure there will be plenty of speculation of a deal to squeeze the bears if they become too overconfident.

Not only do we have this fiscal cliff issue, but Greek debt is back in the headlines again with some concern that a major payment will not be made on Friday. We all know that Europe will continue to "save" Greece as long as possible, but with softening in the Germany economy lately, it's a bit more problematic.

Aside from fundamental issues, the technical pattern of the markets is extremely poor. All the major indices are cracking support at the 200-day simple moving average, which is a sign to many traders to move to cash and stay there.

Technically, we are in a good spot for some sort of relief bounce but the key word here is "bounce," and any upside movement should be treated as such. There is no reason to anticipate a major trend change yet. Look for some tradable countertrend moves but drink the Kool-Aid and start believing that a major change in market character is about to occur. When it does, we will jump on board and go for a ride but it is far more important to have confirmation than to time the absolute bottom.

Keep in mind that I had declared a topping process on Sept. 25. If you acted at that time, you had plenty of time to get out of the way of much of the downside. It will work in reverse when there's a bottoming process and we'll have plenty of time once it starts to put our capital to work.

If you have been a trend-follower recently, you should be sitting on a big cash position and feeling fine about this market. It is tiresome not to have better trading opportunities, but it feels good to be out of harm's way. Remain opportunistic and pick off trades as they develop. The key is to respect that the market is caught in a downtrend and upside can't be trusted.

We have some Monday morning strength but nervousness continues. I'm looking for short-term trades but I will be very selective and keep it tight.

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