Over the Cliff We Go. Market Expected A Deal. Day Trade From the Short Side

Holiday trading has settled in and volumes are extremely light. During Monday's abbreviated session, stocks continued to drift lower. The market tested the 100-day moving average and that level held. Last week the Speaker of the House polled Republicans on tax increases for Americans making more than $1 million per year. That plan was rejected and it should have easily gained enough support to pass. It was a clear indication that the GOP is frustrated with Democratic counter offers. Obama has yet to propose serious spending cuts and entitlement reform has not been addressed. The President prematurely ended his vacation in Hawaii and he is headed back to DC. This is a positive sign, but it doesn't mean that a deal is in the making. Democrats desperately want to extend the debt ceiling. At minimum, they will accept a year. If they don't get this extension by year-end, I do not expect a deal of any sort. Democrats want a blank check and they know the debt ceiling is the only thing that stands in their way. Obama has already researched the 14th amendment and he does not have the power to increase the debt ceiling. I don’t like the tactic being used by Republicans. Taxes will go up across the board and Democrats will postpone spending cuts. The GOP will lose face during the debt ceiling battle. Republicans should have proposed to let Bush tax credits expire for anyone making more than $250K per year (exactly what Obama wanted) and they should not have agreed to extend the debt ceiling. There is no way that DC will get its act together in the next few days and the "lame duck session" won't help. We will go over the cliff for at least a week and time will move quickly. Based on recent developments, I believe all of the tax cuts will expire. Spending cuts, entitlement reform and tax relief will all be negotiated as a giant package when we hit the debt ceiling. This process could get ugly and Fitch is already warned us of a possible credit downgrade. This morning, MasterCard reported retail sales for its merchants. They rose .7% and analysts had been expecting an increase of 3 to 4%. This is the lowest level since 2008 and consumers are cautious. If this number is accurate, retailers will post dismal results. Stores are open longer and the discounts are deeper. They hoped to offset lower margins by increasing revenues. The news will be very light this week. Earnings season will start in a few weeks and the results from Oracle, Nike, FedEx, Bed Bath & Beyond, Darden and Accenture were mixed last week. Corporations are keeping their purse strings tight during this time of uncertainty. I am day trading from the short side if the market trades below the low from the one hour range. I will get more aggressive in my day trading it the 100-day moving average is breached. Tax related selling will run its course in the next couple of days (it takes stocks three days to settle). If politicians hit a brick wall, the rhetoric will get heated and the selling pressure will increase. I don't want to take large positions at this time. One positive statement out of DC could spark a massive short covering rally. The market was selling off a couple of weeks ago and stocks reversed as soon as a meeting between Boehner and Obama was announced. It was a meaningless 5 minute meeting, but it sparked buying. I don't want to get caught in this type of buzz saw and keeping my overnight risk to a minimum. The price action should be bearish this week. When the market does not rally into the end of the year, it is a warning sign. Look for selling late in the day. The 100-day moving average be challenged and if it fails the pressure will increase. . .

Daily Bulletin Continues...