November Flat, With 2 Days to Go « Market Montage

Futures are up strongly following up on yesterday's quite fascinating "outside day".  In fact, yesterday was not only an outside day in the fact it dropped below the previous day's low but also above the previous day's high, it actually engulfed the previous 3 day's ranges – which I am reading today is extremely rare.  Recall we had an bullish engulfing outside day like this on Friday the 16th which led to this large and quick move up, so if this is a similar marker on the charts it would bode well for the bulls in the near term.  

Taking a step back, November has been quite the month – incredible volatility but as of the close yesterday, the S&P 500 was essentially flat with the close of October 31 – less than a point difference.  Of course in the Wall Street world the journey is sometimes – if not often – as important as the final destination.

While a lot of individual charts remain troubled, some leading stocks are showing life and breakouts are not immediately failing as they did thru October and the first half of November.  That's a positive.  Also, speculative juices are running as some of the most beaten down stocks and sectors (solar is one that comes to mind) are the names leading the charge.  This is pretty typical of the "Santa Claus" period in the market between Thanksgiving and New Year's.  Combined with increasing hopes of "kicking the can" on the fiscal cliff and "moar" QE, other issues such as oil and copper that are not confirming 'risk on', along with weak volumes (which have not mattered much since 2009) are being ignored.   As stated yesterday, we are in a band of about 2% up or down from Tuesday's close where the action is not that important but making a new higher high (over 1435) would be a change in trend from what has been seen since mid September.  With each tick up in the markets I'd offer more and more of the fiscal cliff resolution will be priced into the market, and one will begin to wonder when the market will worry about the next major issue – slowing revenue, earnings growth.

As an aside, Politico has a good piece on how it appears the "kick the can" will be happening.  Per the article almost all the Medicare "cuts" will happen in 10-20 years.  When I said things would be backloaded I was thinking more along the lines of 8 to 10 years out but I guess even I am surprised by the accounting slight of hands these people will pull.  Of course the net present value of any "cuts" 20 years from now will be a fraction of what they would be today – i.e. $400B in 2032 will be relatively meaningless, perhaps $200B in today's dollars.

Cut through the fog, and here’s what to expect: Taxes will go up just shy of $1.2 trillion — the middle ground of what President Barack Obama wants and what Republicans say they could stomach. Entitlement programs, mainly Medicare, will be cut by no less than $400 billion – and perhaps a lot more, to get Republicans to swallow those tax hikes. There will be at least $1.2 trillion in spending cuts and “war savings.

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