The bad news was that the market took a hit on the fiscal-cliff news. The good news was that the market held steady after the initial hit, and there was no rush to unload more inventory before the holidays. Although the political battle is obviously causing some uncertainty, the market is continuing to act like it's confident the issue will be resolved before any major damage is done to the economy.
Although it's never pleasant to experience a gap-down open like that from Friday morning, if you're holding long positions I wouldn't be all that worried about it. The market needed a good shake to reset some charts. We've seen this slow upward drift for a while, and it has left a lot of stocks extended and lacking good foundations. This shake-out gives us a chance for some better entries.
The big challenge next week is that trading will be very thin, and stocks will remain highly sensitive to the headlines about the fiscal cliff. The indices can easily spike one way or the other, and in the thin holiday environment you can expect some quick whipsaw.
Oftentimes, during the thin holiday trading we will see some good speculative action in select small-cap names, but I'm seeing no signs of that at all today. I suspect this fiscal-cliff debate has scared away some of the hot money that doesn't like being jerked around by the macroeconomic news every day. We'll see if some "hot pockets" develop, but I don't expect too much.
I want to wish everyone Merry Christmas and happy holidays. It is a good time to forget about the market for a while and focus on time with family and friends. I have to head out for some festivities, but Monday will be a half-day of trading, and I'll be here to see if we can find a little action.