Last night’s election finally gave clarity to the political landscape for the next few years. Obama winning the White House does not come as a surprise if you believed polling data. Polling data aside, the divide between the House of Representatives and Senate has stoked the fire over the fiscal cliff. Whatever side you may sit on today’s market action certainly signals to Washington something must be done. At some point the US will have to face higher taxes AND drastically reduced spending to pay off its existed absurd debt load. We’ll need to see a plan in place to address a whole host of issues and the market is calling the politicians bluff to work together. Today’s heavy volume selling fest certainly provides warning and proof following price works.

Big Wave Trading has been under a sell signal since October’s decline. Today’s follow-through action to the downside confirms we are on the right side of the market. Last Thursday’s rally was all for nothing and was simply a way for longs to exit the market. In any event, today’s selling is confirmation enough and signal things are more likely to get much worse for the market than better. Always be on the look-out for a confirmation of a new rally as we will be looking for Day 1. Today’s lows reset our day count. Be skeptical here as it pays to be defensive in a market like this.

Surprising enough the VIX was unable to close above the 20 level. Market bottoms usually occur when the index is around 30 or greater. While the VIX isn’t a great precision indicator it does provide us insight into where the market can head. In June the index almost hit 28 and marked June’s bottom. We are not quite at a level to say we have seen a potential bottom, but again we’ll wait for price confirmation for a new rally. In addition, VXX and UVXY both remain under their 50 day moving average. If the ETFs cross above the moving average would signal to us fear is about to flood the market. We’ll wait and see.

It is almost too obvious to short down here, but the market does appear to be on very shaky ground. Tread carefully!