The market was headed for a big fall in the early afternoon with the VIX soaring above 20 points for the first time since July. Then news of the House of Representatives coming back to the hill on Sunday sent the robots into action pushing the market back to breakeven. Any news regarding any action and we mean any action has brought on buyers. US Debt Ceiling is set to hit Monday and the Fiscal Cliff on Tuesday it appears we may get some sort of a deal if one side or another blinks. Market action on the other hand has been only helped by rumor of a deal and not an actual deal. Cash remains king in a headline, rumor driven market.
Yesterday’s market action was not very bullish and while today’s intraday support appears to be good it remains to be seen. Sentiment here is very bullish with the National Association of Active Investment Manager’s survey showed 88% were allocating to equities. Mind you this was a 33% jump since November. AAII bullishness hit a 10 month high! Sentiment is hardly a precise indicator, but with many bullish it only appears “sell the news” event is the only likely scenario. Commitment of Traders tracks how long or short traders are of the S&P 500 and traders are the most long since the beginning of 2007. We have a crowded trade to the long side. We should also point out the number of bears heading into the debt ceiling debate last year rivaled that of 2007 and 2008.
All this antidotal evidence does not translate into actionable ideas, but it does put into context the market environment we are in. Price action will dominate our actions and at the moment we have a very erratic market making it quite difficult to have much conviction in either side of the market. For now, caution continues to be the right course of action until something breaks. Today was close with the VIX popping, but it ultimately failed.
Only two days left of 2012! We are looking forward to 2013. Cut those losses and ride your winners.