12:25pm (EST)
Following a flat Monday, the action has picked up a little today with the bears and bulls pushing red and green as both sides jockey ahead of Friday’s Fiscal Cliff news. There is a lot of talk that there is less than 50 days before the yearend deadline but it is less than that which makes this Friday’s rhetoric all that more important.
With the holidays coming up, there are really only 15 days the zombies will be working for the rest of the year so any lost, unproductive meetings will be seen as a negative by the market. Of course, there are plenty of backdoor meetings going on this week at the White House, with business leaders expected to meet with the Head Zombie tomorrow.
Perhaps there will be some good news, some handshakes, some back-slapping and fist pumping by both sides as some sort of compromise is reached but we remember the debacle from August 2011 when the knuckleheads bickered over raising the debt ceiling and in the process ruined the country’s triple-A credit rating (for what it was worth). The Dow was pushing 12,750 in late July before losing 1,000+ points and bottoming at 10,604 on August 9 back in 2011.
The “capitulation” point was on August 8 (2011) and was labeled “Black Monday” in the stock market history books. The blue-chips closed at 11,444 the prior session but fell 635 points, or 5.5%, to close at 10,809 on the 9th. Although it didn’t make the top 5, it was the 6th worst down day in the Dow’s history. On August 4th, the Dow tanked 513 points, or 4.3%, to make the top 10 worst single-session decline list and we are reminding you of these two days to prepare you for what could happen over the next week or two.
On the flip side, if there is a miracle, and the zombies can agree on something to avoid the Fiscal Cliff, the rally higher could be just as explosive. The Dow rebounded 1,000 points off its lows after the debt ceiling cloud was lifted in August 2011 and was pushing 11,700 by the end of the month.
With volatility picking up over the last few weeks, all signs are pointing towards a major move in the market by yearend. We love how history often repeats itself and if the same scenario plays out again, the Dow could be at 13,800 or 11,800 by yearend. This would equate to an 8% move, either way.
As we head into the second half of trading, the Dow is currently up 56 points to 12,871 while the S&P 500 is higher by 7 points to 1,387. More importantly, the index has cleared its 200-day moving average (MA) of 1,381. The Nasdaq is advancing 2 points to 2,906.
We have another NEW TRADE we are recommending so let’s go check the tape as the bid/ask has hit our target area. Subscribers, check the Members Area for the updates and we will be back in the morning with a full report.
