Trading Blog Friday, January 4, 2013
BROAD STOCK MARKET UPDATE (3:00 pm EST): Amazingly the House and Senate came to an agreement early in the week on a fiscal cliff deal and the DOW responded enthusiastically with a whopping 300+ point gain on Wednesday. From a technical analysis standpoint many resistance levels were broken, and our strongly bearish view of this market needs to be tempered now, at least for the short-term and maybe medium-term time frame. (The long-term view of the broad stock market - i.e. beyond 6 months - still presents a dire picture). The very strong bearish signals that appeared in the markets last week were completely negated this week on the news of the fiscal cliff agreement. Such a rapid switch from bearish to bullish obviously gives positive momentum to the markets, but it also hints of volatility on a deep level that may be foreshadowing a major impending downturn or correction. Note that even though much of the fiscal cliff crisis was averted this week (most notably by extending the Bush-era tax cuts for the vast majority of Americans), some major issues were put off (the debt ceiling, spending cuts) and another fiscal cliff crisis may be looming over us in a month or two. We are therefore maintaining caution with the broad stock market but will go long if strong buy signals indicate a substantial short-term or medium-term rally. Right now the signals are a bit mixed so we will continue to stay out of this market.
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