Bear Catalysts

Now that the fiscal cliff deal is done and we get the rally out of the way, I want to look ahead for the rest of the month. 

First, nonfarm payrolls, which has squeezed the shorts the past 3 months.  Expectations have risen with the lower jobless claims numbers over the past few weeks, so I don't see much room to beat those rising expectations.

Second, earnings.  Earnings will be a catalyst as traders focus back on fundamentals and see an economy that will no longer have the payroll tax cut, some of the Bush tax cuts, and have higher cap gains and dividend taxes.  With earnings growth slowing and facing an environment with fiscal headwinds, an improving housing market will not be enough to overcome this.  Analysts are still too optimistic with earnings guidance which sets up room for disappointment again this quarter.

Third, debt ceiling debate.  Although I view this as an artificial crisis, traders have a seering memory of the debt ceiling debacle in the summer of 2011.  That by itself is enough to be a catalyst for investors to de-risk ahead of this.  Also, the fact that spending cuts will be mixed in will only serve to emphasize the increasing fiscal austerity that will be implemented this year. 

So the bulls are having their day in the sun right now, but it should be quite brief.  Expecting a typical first day of year rally and then back to reality starting from the nonfarm payrolls number issued on Friday.  Thursday should be a good entry point for short positions to ride down for a few weeks.