The S&P500 put in a bullish outside day – lower low and higher high than prior day — and closed strong. The VIX collapsed and the Russell outperformed. Apple, which has led the market down, had a huge $25 reversal on big volume, which sure looks like a short-term tradeable bottom to us.
The upshot? We remain a little more, can, we say, constructive on the market. Not balls to the walls bullish quite yet, but a little more constructive in the near term. Strong seasonals are fighting the fiscal cliff/tax increase headwinds.
We are still working on that expected value S&P500 level based on the Erskine Bowles probabilities that we promised you yesterday.
What would a real fiscal cliff panic look like?
Stocks down hard; Russell 2000 down harder; consumer discretionary down hard; gold up; dollar down; VIX spiking; and defense stocks in the tank.
Bonds? Tough to extract a clear signal with the Fed’s financial repression, but, initially, the cowboys would most likely be in buying on recession fears and increased worries about going over the cliff.
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