The Republicans held a stance that if there are no substantial spending cuts in the plan regarding the fiscal cliff, they would not accept it. It sure looked as if that would hold true as once they received the format from the Democrats, they said there wouldn't be enough of them to vote in favor of it. It looked bad for the market and the bulls as the night drew on. Suddenly, and out of the blue, the Republicans had a change of heart and said that the back drop of the stock market was a main reason for their turn around. Isn't it always! We talk about this all the time. Fed Bernanke always letting our leaders know what's at stake. Enough Republicans suddenly would vote for the passage of the bill as is.

It worked out, and thus, the futures blasted higher globally. The futures held strong all through the morning and, therefore, a strong open ensued. A strong day followed. And why not. The immediate stress of much higher taxes across the board wiped out. Relief rally as they call it. Yes, the highs for the day were seen early in the day and there were some black candles around, although not everywhere. But it was a good day for the bulls anyway, although far from a key breakout. More on that later. Stocks, like Apple Inc. (AAPL), did print a black candle under the 50-day exponential moving average. Financial stocks held the best. Retail the worst as the sector was downgraded. Bottom line is it wasn't clean, but it surely wasn't a good day for the bears.

Something not discussed much today due to the impending fiscal cliff was the ISM Manufacturing Report. Normally the market would be riveted to that report, but it was a back burner for today at least. Thirty minutes in it came out and was slightly better than the November report. It came in at a must over par reading of 50.7. It was 49.5 in November, so it was good to see it back over the flat line of 50.0. Nothing to get excited about for sure as it's barely hanging above recessionary levels, but above 50.0 is above 50.0, and the market will take it gladly. It had virtually no effect on the day's action and that's totally understandable.

In the future, it will need to start pulling away from that 50.0 mark, but for today, it was shockingly a nonevent. Maybe the last time you'll see it take place. The economy is barely above the flat line and that's another reason why the fiscal bill was passed last night. Desperate times call for desperate measures as they say. The economy needs a boost from somewhere and going over the cliff would have instantly put us in recession. For now, the economy is barely hanging on. Something has to give sooner or later. We can only hope it's a positive resolution.

The S&P 500 has been playing seesaw for some time now. The entire market has but the biggest leaders have been the small and mid-cap stocks. They are overbought with 70 RSI's on their daily charts. The first to get so overbought. When the daily charts get overbought you give it more attention than when the short-term sixty-minute charts do. At some point soon they will need to rest. When index charts rest you watch how they do so. If the move is more lateral than straight down you take notice, because those overbought conditions will be unwinding without too much price erosion, and that's normally very bullish for another leg up. The S&P 500 itself has been fine, although not as strong as those small and mid-caps. It has a breakout level of approximately 1370 on the daily chart. A strong close above that level would be sweet for the bulls. A lateral move not far below would also set up in a bullish fashion.

There's much to learn, but buying when the markets give up a bit in terms of overbought would be best.

Peace and Happy New Year!

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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