The trees that are slow to grow bear the best fruit. --Moliere
Trading this time of the year is always slow, but I don't recall a period where it has been this dead for so long. The obvious culprit is the fiscal cliff, which has kept the market frozen. There is enough hope that a deal will be done eventually to hold the market up, but enough distrust and weariness to prevent any real buying.
The fiscal cliff has also confused the typical year-end pressures that usually provide movement. Because tax rates are likely to rise in 2012, we have the reverse of the normal tendency to take losses and defer gains. But even tax planning of this type is difficult because we still don't have any idea what the ultimate rates will be on dividends and capital gains.
What has been most surprising to me about the action is how little volatility there is in individual stocks. Traders aren't creating any interesting action. The vast bulk of stocks are just drifting around randomly and the list of big movers, in either direction, is very limited.
The best hope for action is that the politicians are back in Washington today and start talking. The general view is that the next move will be for the Senate to pass a bill that is backed by President Obama, which then can be forced through the House without the backing of Tea Party Republicans.
Many folks don't think that can be done in the next few days and that we will go over the cliff. The bulls aren't too worried about that as a deal in early January will still prevent most of the adverse consequences of the cliff.
At this point, there is little for us to do, but to continue to monitor the fiscal cliff and wait for the action to heat up. It is extremely boring and many traders aren't even watching this market. They have closed the books on the year and will be back next week.
There are a number of stories this morning about weak retail sales and that is likely to be an issue for that sector. On the other hand, there is news that home prices have risen for the first time in many years. More than 20% of homeowners are still under water, but the improvement in the real estate market is one of the bright spots that may help to improve sentiment a bit.
I'm Itching to be more aggressive with trades, but I'm going to force myself to be patient and selective. Until we have some movement in the fiscal cliff, we just won't have much to do.