This will be a tough one. What will the trading day look like?
Given that we are already up almost 200 points on the Dow Jones Industrial Average for the week, and that is gone at the open, my first inclination would be to say that rallies will be tough to sustain because there will be selling right into it. It would be tough to argue for a rally going into the close.
Here's the big problem: bullishness. Bullishness that the "fiscal cliff" would be resolved; bullish because this is a seasonably up time of the year. Complacency has been very high. I noted on Wednesday that hedge funds are the most exposed to the equity market they have been since 2006, according to a Business Insider graph.
Everyone presumed we would have a march to glory and end a good year on a big up note. That is now being called into question.
The VIX is near 20, highest since July.
It's Dec. 21, the world did not end, unless you are House Speaker John Boehner.
Was it really that bad for the Ohio Republican? Looks like at least 27 of the 236 Republicans who voted last night on the spending cut bill would not have voted to raise taxes on those making over $1 million annually. That is not awful, but it's sufficient for defeat.
(Read More: Boehner Plan in Tatters, Obama Seeks 'Cliff' Deal)
Regardless. There is still 10 days left. The president and Speaker Boehner are going to be alone in Washington. They can call back the House on a "48 hour" notice. A deal can still get done.
They are not far apart. Consider:
1) On revenue raises: only $200 billion separates the president and Boehner ($1.2 trillion from Obama, $1 trillion from Boehner). Capital gains and dividend taxes can go from 15 percent to 20 percent.
2) Debt ceiling: Boehner is offering a one-year extension, Obama a two-year.
3) Tax hikes: Boehner is for those making over $1 million, Obama is for those over $400,000, but Obama has indicated he is flexible on this.
4) Entitlements: Obama would accept changes in the way inflation is calculated for Social Security.
Less clear is what happens to a payroll tax cut and unemployment benefits.
The ball is in the Senate's court. Senate Majoirty Leader Harry Reid (D.-Nev.) needs to craft a bipartisan bill, and then kick it to the House of Representatives, which will be under pressure to act on the Senate bill.
Boehner will put together some coalition with — gads — Nancy Pelosi (D.-Calif.) and the Democrats, at the last hour.