Home > Market Commentaries > S&P500 falls off the resistance, “Fiscal Cliff” looms

S&P500 falls off the resistance, “Fiscal Cliff” looms

Posted: 12/30/2012 - 4:37 pm

On December 1, we said that the S&P500 was approaching a key resistance zone at 1430-1470 where selling pressure would likely emerge. Our recommendation was to start cutting any long exposure to the S&P500 and get ready to go short at the first sign of breakdown (read: The risk balance shifts to the downside, again). Our view was supported by the ambiguity surrounding the “Fiscal Cliff” discussions.

Indeed, the S&P500 faced renewed selling pressure at the designated resistance zone and the absence of a “Fiscal Cliff” deal was a key driver behind the market’s 3% drop from 1448 to the current level at 1402.

The last attempt to strike a deal before the end of the year is currently taking place as officials from both parties meet over the week end to avert the cliff. However, an agreement is unlikely.

The failure to reach an arrangement of some form is expected to keep the selling pressure high in the market but a last-minute deal should be a catalyst for a positive reversal. After all, the expectations are low and any deal should come as a positive surprise to market participants.

We do not support betting on market events and we look for signs from the price action when deciding to take on positions. At the moment, there is not enough that justifies going long.

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