When politicians take over market sentiment and stray words by Washington leaders send the market moving suddenly in either direction instead of the laws of supply and demand dictating movement it is time to be careful. It is very possible before the fiscal cliff deadline is reached this month that we could both see a day of an epic rally due to a belief that an agreement has been met severely and suddenly hurting short positions. We may see that AND a major plunge day when it appears that the Republicans or President Obama are willing to let the cliff plunge happen for political reasons. It is time to be VERY careful until this is resolved. For most traders this is a time when cash is king so you don’t end up being a pawn.
The market is currently range bound and has been for the last two weeks. This is currently not the time to be buying break outs or trend trading.
With the fiscal cliff approaching the markets are exposed to huge headline risk, a speech out of Washington D.C. and cause sharp moves in either direction at any given time. This is not the time for any aggressive long term positions in my opinion.
For me, this finale volatile month of the year has been all about keeping my profits for the year, not about stretching to make more. My #1 concern right now is capital preservation not capital appreciation. I am trading smaller and hedging my bets. My primary strategy in December has been non-directional option plays attempting to profit from volatility not directional plays.
The 50 day moving average has been strong resistance in two of three major index ETFs this is a bearish sign with buyers not rushing in above this level on any intra-day break outs.
The 2012 market leader and darling of Wall Street Apple is gyrating wildly with many doubts about its ability to stay on course with growth and margins, this is not a good sign for the total market. Apple’s price action is reflecting much uncertainty about the future and I would not be surprised if this does not bleed into the market as a whole as the fiscal cliff approaches.
With Apple’s current volatility it is to be avoided by most that can not day trade profitably or execute option strangles. A close above the 5 day ema is the first step in any order being restored to the force. Currently the 5 day ema is the spot that can be shorted in a small way, cautiously, but that is also dangerous in this market and stock with all the volatility. Apple has currently gone to the dark side and stayed there since losing the 50 day sma.
Google is currently trapped between the 50 day as resistance and the 200 day as support. A break above the 50 day will be needed if this stock is to start a new uptrend.
On Friday the $SPY was able to close above the 50 day for the first time since late October, but the price action and volume was not impressive. The 50 needs to now become support if this break above is real. Also the $QQQs need to follow.