Index ETFs Continue To Back Away From Fiscal Cliff

Index ETFs continue to back away from the fiscal cliff by posting more solid gains today

Index ETFs continued to back away from the fiscal cliff today despite stalled out fiscal cliff talks between Congress and the White House. The SPDR S&P 500 ETF (NYSEARCA:SPY) rose .47%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) rose .39%, the PowerShares QQQ Trust Series 1 ETF (NASDAQ:QQQ) rose .6%, and the iShares Russell 2000 Index ETF (NYSEARCA:IWM) closed 1.14% higher.

Investors appear to be hoping that Congress and the President will indeed come up with a deal to avoid falling off of the fiscal cliff, despite the fact that Speaker Boehner today announced that he was “disapointed” with how negotiations have gone thus far. Nonetheless, many believe that the fiscal cliff dilemma will likely be resolved before Christmas, as the President and Senate Democrats are currently shooting for a “grand bargain.”

Whether the government “punts” this problem into 2013 or not is still an unknown, but I would think that a grand bargain is wishful thinking and markets will likely shoot through the roof either with the “kick the can” approach or a “grand bargain” approach. With December rapidly approaching, history tells us that this time of year is typically good for the stock market, so a fiscal cliff resolution, either big or small, will surely add to the potential seasonal euphoria. And, of course, if Congress and President Obama fail to avert the cliff, I would say we would be looking at The Great Recession 2013. With only 32 days left until the US does fall off the cliff, time and further negotiations will tell us more about what to expect.

From a technical perspective, the S&P 500 is still stuck below its 50 Day Moving Average despite its five point increase from yesterday. With the S&P 500 closing at 1415.95, I still believe the bulls have to mount a major offensive to firmly break through the 50 Moving Day Average in order to sustain long term growth. However, with a positive MACD and RSI, coupled with hope of a fiscal cliff resolution and the seasonal euphoria of the potential “Santa Claus Rally,” anything is possible. Still though, the 50 Day Moving average will be hard to break until we have some more answers from the US political system.

Index ETFs also likely got boosts from the improved pending home sales report and better unemployment figures, as well as improved economic figures from Europe.

Bottom Line: We are not out of the woods yet, and investors may be celebrating fiscal cliff “resolutions” too early. I would hate to think that Congress would fail to reach a deal, but anything is possible, so for now we are waiting.

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