Stocks are churning above 1400 and in the green at midday as traders demonstrate willingness to buy and hold at these levels. We are finding support as tentative optimism over a Fiscal Cliff compromise persist.
No doubt cynical bears are leaning into the is market again, but the market is holding up for the time being. Bears putting on new shorts are creating the fuel for what could turn into one more short-squeeze.
It all comes down to how many new buyers can be tempted to wade in above 1400. We’re working on our 6th close above the 200dma and 3rd close above 1400. The longer we hold here, the more tempted people will be to buy. Of course the irony is their confidence is what will ultimately undo this rally. Once they are done buying, demand will dry up, and we’ll selloff.
There is always news in the world, both good and bad. Right now the market is gravitating to the good news and ignoring the bad. It helps that our politicians appreciate the importance of perception and are doing their best to make it look like they are working toward a compromise. Of course it also helps that we are at the early stages of the negotiations and it is easy to agree in principle But the devil is in the details and we should expect some major wrenches in the works when the negotiations move into the finer details. A major snag is what could trigger the next round of selling.
I still think there might be a little more upside left in this move, so wait a little longer before putting on a short position. But we are getting close to the end of this run and longs should start looking to lighten up. Of course this is directed toward the swing traders, longer viewed investors can continue holding, just expect some near-term volatility and be prepared for another dip before all of this is resolved.
Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two young children.