Traders apparently believe all is well in D.C. and are beginning to take strong bullish positions. It surprised me today when we didn't see some profit taking this afternoon. SPX closed at $1447, up $16 and near its high of $1448. RUT gained $13 to close at $848. Trading volume spiked upward with 3.2 billion shares of the S&P 500 trading. Trading volume on the NYSE was up 20% and volume was up 5% on NASDAQ. VIX dropped almost a point to 15.6%. There was minimal economic news today, so this rally is presumably based on a deal to solve the fiscal cliff. Optimism that is well seems surprising to me, but you can't argue with the tape. I was waiting for the sell-off this afternoon to unload my December call spreads, but it never materialized, so I am facing the prospects of a serious loss here. We'll see what tomorrow brings.

As I self-analyze my position, I think I have violated my own rules about not predicting the markets, i.e., trading non-directionally. The debt and spending situation for our government is out of control, and I have yet to see any proposals being discussed in Washington that begin to address these problems in a meaningful way, e.g., raising taxes on everyone at $250k and up only funds the government for a couple of weeks or less. So I think I have been predicting lower markets without explicitly making the prediction. I will pay the price for that oversight.