Don't bargain yourself down before you get to the table. --Carol Frohlinger
While Friday's tragic school shooting in Connecticut is the main focus of the news this morning, it is still the fiscal cliff issue that will determine how the market acts this week. Speaker Boehner is said to have agreed to increased taxes for those who earn over $1 million per year, which is a sign that the parties are working toward a compromise; however, there are still plenty of issues to be hammered out.
The market still is acting optimistic that a deal will get done, but the timing is going to be problematic. If we don't have a deal by this weekend, the market is going to be very concerned that there won't be one before the end of the year, and that will cause some uncertainty and some worry.
It really would be nice to focus on something other than this fiscal cliff issue, but it is the only thing that really matters as far as market direction in the near term. We still have plenty of problems out there that could weigh on the market -- even if the fiscal cliff was not an issue -- but we won't even be able to contend with them from a market standpoint until this issue is at least partially off the table.
Many market players are simply going to shut down until next year if this issue continues to drag on. There just is no edge to trading when we jump around to each new news headline. The market is likely to be even more sensitive to each news story now as the real negotiations begin and the deadline gets closer.
A good example of what this issue is doing to traders comes from Scott O'Neill of Investor's Business Daily. He states "If it's not the super committee, it's Greece, then it's something else ... You back away and just sit on the sidelines".
Unfortunately, many traders are doing just that and it is making for some very slow trading. There are always a few pockets of trading action but they are very limited. Typically during the holidays we see better speculative action in a small group of stocks as traders look for action and we have a better mood in general. We still may see that "holiday" trading but it is likely to be narrower and we will need to be much more selective.
My game plan is to try to avoid being jerked around by the headlines and the best way to do that is to stick with individual stocks that are moving on their individual merits. I want to go where the hot action is but have to be cognizant that any news headline is going to impact everything.
The best thing this market has going for it is the fear of being left out if a fiscal cliff deal is made. That is what is putting a bid under this market, even when Apple (AAPL) is stumbling about and drives down the Nasdaq.
The market has a slightly positive start this morning but the uncertainty is likely to keep it pinned down. Focus on the individual trades but stay vigilant and be ready to move if the macro news flow starts to clarify.