The market continues to struggle as the realization grows that the politicians actually are going to allow us to go over the fiscal cliff. The market is still hoping for some sort of Band-Aid deal but losing faith quickly. The big negative is that we really have no idea how much longer this will drag out and the chances of some sort of "grand bargain" are steadily declining as well.
What is particularly interesting is how poorly the market has anticipated this situation. Market players have been very confident for more than a month that a deal would be made before year's end. The indices have been pricing in and the only real concern is whether we might have a sell-the-news reaction when the deal is done.
Instead, the market is now forced to reassess and given back all the gains of December and testing the support areas of November. One more day like this and we won't be too far from the November lows.
Traders still have their fingers crossed in hope for some sort of surprise news that will spike the market up quickly. Given how poorly most folks are positioned, it could be a very powerful move, but trying to position in anticipation of that action is extremely difficult.
My strategy is to stay vigilant and be ready to move quickly when the news hits. A good move will last longer than a day and there will be time to put money to work even if you don't catch the bottom tick.
My thinking is that it is better to wait and join the party late than to keep trying to guess when it might start. I'd rather miss early gains than rack up losses in an attempt to time things too precisely.
