We Want A 5% Market Decline – Profit Taking Should Last A Week

Posted 9:30 AM ET - We are in cash and we are waiting for this round of profit taking to run its course. Over a week ago we took profits on long positions and we went to the sidelines. All of the good news did not spark a breakout and that was a warning sign. Watch for soft price action this week and get ready to buy. Republicans are haggling over tax cuts and the clock is ticking. Thanksgiving recess, Christmas recess and debt ceiling negotiations will impede them. They need to be clicking on all cylinders to get tax cuts passed. Investors are less excited about the "watered-down" solution than they were a month ago. The Fed will hike rates in December and that typically makes investors nervous. There are also a change at the helm (Powell will replace Yellen) and two Fed Officials (Dudley and Fisher) will retire. These nagging issues will spark some profit-taking. If the decline gains momentum bullish speculators will be flushed out. I would love to hit an air pocket. The macro picture has not changed. Any tax cut is better than nothing. Higher interest rates are not a problem since they are coming off of historic lows. Economic growth is strong enough to shoulder monetary tightening. Earnings season has been excellent and valuations are not too stretched. Swing traders need to wait on the sidelines. We will let bullish speculators get flushed out and we will scoop stocks once support is established. Seasonal strength will provide a tailwind. Day traders can use SPY $256.50 as a guide. If we are below it, favor the short side. Next support is at $255. If we spend time below $256.50 and we rally back above it you can trade from the long side. Watch for profit-taking this week. Look for tocks with relative strength and start lining up your candidates. This wave of selling should run its course by Thanksgiving. . .

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