Tax Bill Rally – Stay In Cash and Wait For A Dip

Posted 9:40 AM ET - The market is breaking out to another new high on the notion that the tax bill will be signed this week. Dovish comments from the Fed are also fueling the move. Unfortunately, good news is priced in and I feel that the SPY will stall at $270. Once the tax deal is signed the focus will shift to the budget. It needs to be pushed back into January this week. Democrats are frustrated and they will take their anger out during the debt ceiling negotiations. Republicans know that new legislation will be hard to pass since they lost a Senate seat. They also know that 60 votes are needed to extend the debt ceiling. The "kitchen sink" will be thrown into the process and the rhetoric will get ugly. We could see a temporary government shutdown. The market won't like the uncertainty. After a massive run this year, I believe we will see some profit-taking in January. Corporate tax cuts won't take effect for another year. The benefits of individual tax cuts will take time to flow into the economy. Swing traders should stay sidelined until we get a nice dip. The upside rewards are smaller than the downside risks. Day traders should also keep their powder dry. I don't like trading up opens especially when a new high is established. Trading ranges will collapse this week and volume will dry up ahead of the holiday. I have a few long positions, but my exposure is very limited. It would not be surprised to see a nice rally to SPY $270 and a small pullback after the tax bill signed by Trump. . .

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