For the S&P 500, tomorrow’s Fed decision is far more important than the German vote. With a significant majority expecting the Fed to open the balance sheet, the risk is for disappointment. So we see a correction risk down to 1395 or perhaps the rising trendline supports of the 200-day average and the lows of the past 2 years in the 1365 area in a worst case scenario. There is probably enough support for European bonds for now that the risk has not gone away, but it has moved to the backburner with the US election and fiscal cliff probably more important in the coming quarters (along with earnings).

On that front, 2013 still looks extremely challenging from our view point. At this point we are well positioned for a small setback, with a bias to buy the dip into early 2013. The major bear market divergences in Dow Theory persist (between transports and industrials) and the 4 year cycle suggest a more material top for stocks is likely in the coming quarters. There is nothing normal at all about the current cycle, so we would not rely too heavily on cyclical patterns.