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The Day Ahead: Snipe the Bull -- or the Bear

Boom! Wake up ladies and gents. It's show time. Do you have grand visions of mailing it in during this holiday-shortened trading week? Better put back on the camouflage gear and dust off the scope on the investing sniper rifle, for we are at a crucial juncture in the markets. Your mission is to take out either the bulls or the bears with a clean shot, and to do so after developing a thorough plan -- because, for the first time since the elections, two strong opposing views are in the roaming the forest.

I am not talking about the gibberish that had been spewed by book-pumpers throughout October and into the election. On the contrary, there is new, tangible evidence to suggest stocks have gotten too cheap, assuming we see a "compromise budget" from Congress (which is different from the austerity budget reflected by the recent decline in stocks). Still, while I feel the passion in the voice of the bulls as they wave around an array of fancy technical measurements, keep in mind that the bears remain ravenous -- and they have every reason to be skeptical of the claims by the bulls. There is this creepy sense that another 200-down day on the Dow is possible if the political-suit-wearers do not deliver incremental holiday cheer on fiscal cliff at each presser.

Market Sanity Check

After Friday's session, when stocks reversed earlier losses on a good deal of volume -- with Apple (AAPL) entering into the mix, no less -- there are apparently green shoots forming beneath the soil. The rationale is that the fiscal cliff will be mitigated and that the U.S. will narrowly avert recession in the first half of 2013 -- and that, in any case, this latter scenario is one the market has already discounted. A problem with this logic is that the corporate profitability picture remains a divergence, and the macroeconomic data have been of no help thanks to Hurricane Sandy.

So, in all, an investor is left buying on hope the market is correct in reading daily political headlines. You dig?

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Markets

Chart of I:DJI
DOW 15,660.18 -254.56 -1.60%
S&P 500 1,829.08 -22.78 -1.23%
NASDAQ 4,266.8370 -16.7550 -0.39%

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