Keystone's Morning Wake-Up 12/29/12; Fiscal Cliff Kabuki Theatre Final Act Set for Sunday Evening

Pennsylvania is hit with more snow as the dust settles from the Friday night act of the Fiscal Cliff Kabuki Theatre. The president called a meeting to the Whitehouse, not to propose a counter offer, but rather to tell all parties involved that things are the same and the Senate should bandaid together a skinny-mini fiscal cliff package.  This skinny-mini is analogous to placing a wooden plank out from the cliff that we must all now walk. The political lack of leadership, dysfunction and pettiness, by all parties involved, is truly astounding. In private business, no manager would call together other high-priced managers to tell them that there is nothing new, that is simply a waste of time and money.

The duty of providing leadership is now sluffed off on Leaders Reid and McConnell to come up with a plan today and tomorrow. The reason the drama is ratcheted up now is the e-mini S&P's reaction after regular trading closed at 4 PM EST. Traders and markets are becoming fed-up with the political shenanigans. The void of leadership is sending markets lower as traders and citizens lose confidence in the economy and future. The weak Consumer Confidence number proves this as well as the weak holiday sales which are now rippling into weak global retail sales numbers. The S&P futures dropped about 25 handles punching out a lower low at 1383, under the 1391 low from a few days ago. The SPX is set to open down about 40 handles and the Dow Industrials down over 300 points on Monday unless the politicians provide a stick-save Sunday evening.  A lot of times, the drastic drop in the futures evaporates by the time the opening bell rings for the regular session, but the outcome is likely dependent on what happens Sunday afternoon and evening. In 1987, the crash was a cascading type event where Asia was down large, which rippled into the European markets, then when the U.S. opened the goose was already cooked. Thus, the futures and currency markets are uber important on Sunday evening, as well as the political drama over the anticipated Reid and McConnell package.  The urgency will continue into the opening bell on Monday morning, the last trading day of 2012.

The SPX falling thru the 200 EMA on the 60-minute chart at 1418 is a very negative indication. Likewise, the SPX came up to try and hold the 20-day MA at 1422, and 50-day MA at 1412, but both these levels have failed.  Keystone's SPX:VIX Ratio Indicator plummeted to close at 61.73 well under the bull-bear line in the sand at 68 indicating that the markets have fallen into a bear market pattern and have potential to crash in the days ahead. The only thing that saved the bulls yesterday was the clock running out at 4 PM. The VIX jumps to 23. The semiconductors failed in the final minutes which will create a large push lower but the bell rang.  SOX 377.10-ish will be very important on Monday. The SPX did not hold the uber strong 1403 support, closing just under at 1402.  The SPX is now under where the FED announced QE3 Infinity in early September at 1438, also QE4 Infinity and Beyond at 1430, also where the ECB announced the OMT Bond-Buying plan at 1403.  Do you think the luster is off the QE rose?

The debt ceiling limit is key. Pay attention to whether or not if the plan handles the debt ceiling. If the debt ceiling is not part of the plan, then all the theatrics will continue daily thru January and markets will sell off unwilling to tolerate more of the dysfunction.  If the debt ceiling limit is pushed off, even a few months into the future, as part of the plan, the markets will stabilize and cheer up on that news. The fate of the markets is in the hands of Reid and McConnell this weekend. As Tiny Tim says in Dickens' A Christmas Carol, "God Bless Us Everyone."