Be cautious at good news, fiscal cliff worries stay: Expert

In an interview to CNBC-TV18 Ryan Detrick, chief technical strategist at Schaeffer's Investment Reseach analyses the worrying situation around the fiscal cliff talks.

Also read: Wall St Week Ahead: Going off 'cliff' with a bungee cord Below is the edited transcript of his interview to CNBC-TV18 Q: All eyes are on the fiscal cliff talks that are taking place. Is Wall Street nervous ahead of that? A: It looks like it is. We are looking at potentially down everyday this week. That is extremely rare. So, we have got the mixture, but it is funny because fiscal cliff is all over the place. One has to wonder how much of the fiscal cliff is honestly priced in and how much of this uncertainty continues to be. It is auspicious to say but they began to blame Europe, Greece and now the trouble is in the Middle East. It is almost like a perfect cocktail of uncertainty. We all know that markets hate uncertainty. As a result we have clearly been punished lower here. Extremely oversold in a near-term could lead to a big bout at any time. However, bigger picture is that lot of charts are abrasively damaged. There is a definite concern that the rest of the year could be lower trending. Q: What else is the market working with? Earnings season and the election uncertainty are over. In that perspective, do you see some amount of caution still remaining till the end of the year? What kind of targets are you working with? A: Yes, we do definitely see small caution. Historically, November-December are two of the strongest months. I believe it is like the second – fourth strongest months since last 20 years, usually of that Santa Claus rally. Again this is not a just average year. Also, one thing that encourages us is the fact that there is so much negativity. We have levels of bears that we last saw at the June bottom. The bonds, we have seen at the lowest levels in a very long time. So, you can make the argument. A lot of negativity is obviously to be priced in. Any good news, either from Europe or on the fiscal cliff front, could spark good rally. We just need some good news. Until that my advice is, be really defensive. Q: Generally, November and December are strong months, but this time do you think that is not going to be the trend? A: I think it is going to take some good news to get us there. My take is still, be cautious at any good news and all the negativity out there. We look at price action and options here at Schaeffers. There is a lot of fear coming in. A lot of people talk about the VIX and how it hasn't spiked higher as expected after the election. There is some truth to that. However, if you look at what the future markets and options markets are saying is that there is a huge VIX collapse. There is still some fear coming in. I you look at VIX from behind the scenes, that is a good sign when you have a lot of fear. But, still that doesn’t mean that there can be fear and the market can still go lower, like the mark we have gone in 2008. I am not saying it is going to be like that, but again there are some concerns out there. There are still some sectors, which look good. Housing is a sector, it has hold back. We still think maybe there is some opportunity in housing, if someone wanted to play an oversold bounce here. We like that earlier, but we would still say avoid financials. It is a mixed bag out there. There is still some opportunity, but we wouldn't be too aggressive on the long side either.