Just the headline of a meeting between Boehner and Obama helped push the market off the lows. There is desperation for a deal for the fiscal cliff. The market for the second straight day rolled over from the morning highs. Despite doubling down on QE infinity stocks have been unable to crest above last week's high. Volume on the NASDAQ rose giving the index another day of distribution while volume fell on the NYSE. Price action is not strong at the moment and given the lack of thrust from recent breakouts this uptrend we have been in is at risk for failing. Cash remains king.
The fiscal cliff is such an interesting beast. On 11/16 we were close to getting a deal and yet four weeks later we are no nearer a decision than we were on 11/16. Our government spends roughly 25% of GDP by borrowing forty cents for every dollar spent. It is a nice thing to say we aren't taxing the rich enough, but taxes only get us so far maybe 1/10th of the way. While we have been able to implement tax cuts we have never been able to cut spending. It is time to take our medicine and begin down the path of sustainability.
This recent uptrend is still without a true follow-through day and even though we could get one tomorrow it isn't likely it will produce tremendous gains. Days 3-7 are the sweet spot for a confirmation of a new uptrend. The lack of follow-through day simply underscores how weak this uptrend has been. Where are the stocks zooming out of bases? Sure we have had some breakouts, but they aren't screaming higher like we normally see in a sustainable uptrend. As of now, we do not have the strength needed to continue this rally. This action is the main reason despite our model switching to a BUY signal two days ago that not one position was placed off of this signal. There was simply too much cross-currents and bad/confusing action. Our model has obviously returned to the NEUTRAL mode. No harm, no foul, this time around.
Know your exits and if the situation changes be ready to adapt!
Have a great weekend.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.