During the holidays, indulge in laziness. Spend time with your loved ones and let your heart dance. --Simran Khurana
Good morning, I hope everyone enjoyed the holidays. We'll have time to ease back into the market as nothing much is happening. There are slight gains in the early going as President Obama returns to Washington to deal with the fiscal cliff. Market players still have not given up hope that a deal will be done soon and that is keeping a bid under the market.
Overall, there is nothing very remarkable about the market. It pulled back from recent highs after the House failed to pass Plan B, but the market is well off the November lows and still above the 50-day simple moving average of the S&P 500. In other words, it is in a trading range and, with the very thin holiday trading environment, likely to drift around as we wait for news out of Washington.
There are only two themes of interest and neither is easy to trade. The most obvious is the positioning for a fiscal-cliff deal. The bulls have been anticipating something for a while and were burned last week when Speaker Boehner couldn't deliver. There is still optimism that a deal will be reached, but the longer it is delayed the more nervous the market becomes. I believe there is enough hope about a deal that it will hold us up and give us a bullish bias.
The other theme is tax planning. We always have selling of losing positions at the end of the year to offset capital gains, but this year we also have pressure to take profits because of the great likelihood of increased tax rates in 2013. We still don't know what those rates may be, but there is little question that the investor class is seen as a source of funds by the Obama administration.
Other than those two themes, there is very little going on. As I mentioned Monday, I'm very disappointed in the level of holiday trading. We aren't seeing the pockets of speculative interest that usually create interesting trading in small stocks. I'll be watching again today to see if something develops, but there doesn't seem to be any real push among traders to actively pursue things. That is probably due in part to the fiscal-cliff overhang, but a big part of it is a lack of involvement in the market.
My approach is to stay lightly invested and to be opportunistic. I'm concerned about being caught with too much cash when a fiscal-cliff deal is made, but I simply can't find many places to put money to work. The very slow trading has produced few setups and when I do have one that works, my inclination is to take profits when I have them and keep stops very tight.
Keep a very open mind and see what develops, but the focus seems to be on enjoying the holidays and not doing much as far as the market is concerned.