This morning saw a large fast paced rally based on rumors of progress on the fiscal cliff issue. I would love to say that all our worries are over and now comes the profit. But it's not that easy. The US dollar index is up and Dr. Silver is down, showing headwinds still. SLV has been a decent barometer of late for watching SPX. IWM and QQQ have started to perform consistently with SPY, which is comforting. 

The problem with investing in a day like today is that we are mostly news driven, and you cannot get the news quicker than everyone else. I am still in UPRO at my original buy price of 78.025, and I do think I will clear it at some point in the next handful of trading sessions. I still have more than 50% reserve cash as well, and have heavily debated going into positions of XIV. I particularly thought about 15.41, which was the major .236 fib line. The problem is, with the market being news driven instead of technically driven, if we pierce under that line, it can get really ugly quick. High risk, high reward. I chose not to.

Emotions will be high for a while, and volatility in price movements is a guarantee. Be aware that even if a compromise on the fiscal cliff is made, lots of issues will still need to be worked out. Also, this will not likely end our bear market started back in October, but a solution will provide a hefty quite playable rally.

We predicted a while back that a heavy rally would send us to the highs after we touched 137.5. Well, we got that and more, but did not touch the lower weekly BB, and this was an orderly sell-off. We did not break 20 nor 25 in the VIX, indicating panic and not just fear. I still expect volatility and unpredictability in the markets culminating into a full .382 crash, which would again put us around mid to possibly upper 110's. 

Until the next intermediate term swing rally up is confirmed, which could begin today or whenever, we cannot start to predict the height of that rally. Originally, I was looking at this similar to Aug 2011, but elements also point to May 2010. Either way poses a disorderly .382 correction, but where, when and how they start is different. May 2010 touched and rode the top BB for a while. I still have a "signal" that works most of the time if we determine that is the case, but that type of a rise produces a nasty flash crash and it will be harder to time. 

So, bottom line is this, if you are adventurous and want a semi-calculated gamble (I prefer investing to gambling), buy a little now, and place a narrow manual stop that you will sell if the news goes negative, do not place an automatic stop as volatility will likely knock you out regardless of the decision. If you can settle to wait for clarity, which really is the better choice and the one I advocate here, buy some at the end of the day if we end near intraday highs, but below 137.5-ish. If we end near mid to low of day, forget about it for now. Odds will be against us in the short term still. I would be against shorting for now.



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