12:15pm (EST)

The bulls were hoping for some good headlines this morning from the zombies but one of them took the podium to say a Fiscal Cliff deal is getting less likely as the deadline draws closer.  The Senate’s Majority Leader, Harry Reid, wants crybaby Boehner to come to them with a new proposal but he has said the Democrats need to act first.  Sounds like another stalemate to us.

We were expecting one last dip today and maybe a bounce in the afternoon into next week but further weakness could be damaging as the bears push the bottom of the current trading range.  The major indexes are once again dancing with our downside targets and we are getting plenty of clues that January could get pretty nasty.

We have mentioned this week and next will be important for market direction and while we have been slightly bullish, we have started to prepare for a nasty selloff.  Of course, we still have to let the charts play out over the next few weeks but our message is this.  Do not be scared or panic if the S&P does lose 100 points or 7%-10%.  If we are right, the profits we will make in January and February could be tremendous.

We still have some trades we are trying to cleanup from our last “batch” as we wind down the year.  It will be important to let our winners ride with tight stops while cutting any losers we could have.  We will have plenty of room to add new positions as we close near-term trades and start to play the February and March option chains.

We came into the week expecting a 4% move by next Monday’s close and so far we have seen a 2% move to the downside.  We would imagine if the zombies push us off the Cliff, we could lose another 2%.  This is when some on Wall Street might see things as a “buying opportunity” but if the market falls another 2%, a clear trend will be in place and it will favor the bears.

As we head to press, the Dow is down 88 points to 13,026 while the S&P 500 is lower by 13 points to 1,406. The Nasdaq is lower by 26 points to 2,963.  The bulls are trying to hold Dow 13,000; S&P 1,400; and Nasdaq 2,950.  If they don’t, the fat lady could be singing. 

We have a lot to cover inside the Members Area so let’s get to it.  We will be back in the morning with a full report but we could be busy this afternoon if there is no bounce.  If we do decide to take action or add new trades, we will send out an Alert.