Well, at around 8 p.m. EST House Majority Leader Eric Cantor, announced that John Boehner’s ‘Plan B’ would not go up for vote as planned. A real deflator for the optimists that thought things could be worked out. There is still time, but obviously as more time passes people begin to worry. Knowing that, I believe the drop tonight was simply panic selling from another failed attempt of trying to close the deal.
But the question going forward is where will the S&P 500 futures be if a deal gets done, does not get done, or is a temporary deal that pushes back the talks?
Deal Done:
Lets start with the optimistic point of view that we get a deal by end of year. The easy answer is to say we explode higher off great news…well I beg to differ. Personally, I believe the market is moving in a way that it thinks the deal is already done and we have moved on. Since Monday we have rallied from 1410 all the way up to 1444 set on Wednesday, with Thursday closing right up near the highs at 1440. The sell-off that brought us down to 1406 tonight has already captured back 15 points, as it now sits at 1423.95. We would not be bouncing this hard off the lows if investors were really worried about the ‘fiscal cliff’. I believe it’s a non-event, and if a deal is done investors and the market will continue its slow melt-up that we have been seeing for the past month now.
Over The Cliff:
Now lets take the doom and gloomers point of view that a deal is not reached and we take a nosedive off the cliff! That sure doesn’t sound too appealing but I promise it’s not as bad as it sounds. Like I said up above, I believe the fiscal cliff is a non-event and its all a way for the media to suck you and believe we are going into a dark place. Not true, you need to listen to what the market is currently telling you to know what will happen if we go off the cliff. Right now price action is great, and we are consistently making higher highs as we go. Also, the internals are breaking out such as the transports and emerging markets…this would not be happening if we were going to collapse off of bad news. Period. If bad news were to come out of the White House, that a deal was not reached I would expect just a small sell-off initially, and then a rally to kill the shorts that entered based off of just news.
Middle Of The Road:
I promise this one will be shorter since I’ve already been ranting for to long. So what happens if nothing is reached and it’s pushed back to 2013?? As you can probably imagine the most I expect is a small sell-off (10-20 points) and then a push for higher-highs. This is a non-event, and I truly believe price tells the story and so far there is no reason to believe we don’t go higher if there is a stand still between the to parties.
Author: Peter Nitso
Twitter: @PeterNitso