Markets today are up significantly on news of a "fiscal cliff" deal. Regardless of what the deal does or doesn't do, the markets are flashing some warning signals; warnings for us folks who keenly watch our ticker tapes to continue to tread lightly. Yes the allure of immediate profits is big - as it seems like sentiment is over the roof happy at the moment. But I challenge you to wait, hold and watch over the next few days and weeks as the markets digest the new fiscal cliff bill, and as new problems in deficit spending and the debt ceiling crop up. Watch what the indexes do in response.
To me, it looks like now is a good time for short term traders to start looking at taking profits. If I were a short term trader, I think it would not be such a good time to go long on anything other than precious metals.
It looks as if the Dow Transportation average is going to close above its last intermediate high. The Industrial index looks like it will not be so lucky. A classic Dow theory pattern is shaping up with one index peaking above an intermediate high, and the other failing to confirm. If the pattern completes, next would come an equal but opposite move - in this case, the Dow peaks above it's old intermediate high and the transportation index fails to confirm. What comes after that is a good old fashioned "unexpected" sell-off of gigantic proportions.
If this Dow theory pattern fails, we'll either be already testing new highs on both indexes, or falling to new lows. At this point in the relationship, either of those scenarios are likely.
