Although the key indices finished essentially flat for the month of November, everyone now is asking “will a Santa Claus rally come into effect?” For the month, the Dow Jones Industrial Average (chart) closed lower by 0.55%, the Nasdaq (chart) finished up 1.11%, the S&P 500 (chart) +0.29% and the small-cap Russell 2000 (chart) closed the month up 0.39%.

With the ever increasing rhetoric coming out of Washington regarding the fiscal cliff and whether or not a deal can be made, I am not so sure that we can have a year end rally. Markets hate uncertainty and unfortunately it may take a market swoon for both sides of the aisle and the President to come together on a deal. If this is the case, we could indeed retest the mid-November lows on the S&P 500 (chart) which would be about 70 S&P points from the close on Friday. That said, the markets right now are so sensitive to every word that comes out of Washington, a rally could also occur should there be any positive developments. Most traders embrace this type of environment for it does produce opportunities on the long and short side.

Technically speaking, all of the aforementioned indexes including the transports remain above their respective 200-day moving averages and appear to want to go higher, however, politics and policy do hold the cards as to how we close out the year. Good luck to all.

Have a great weekend 🙂

~George