Market Will Run On Tax Cut – Take Profits When the Momentum Stalls

December 1, 2017
Author: Peter Stolcers, Founder of OneOption

Posted 9:30 AM ET - The market is ripping higher and a tax cut is priced in. There are still many small hurdles for the GOP to overcome before the bill is passed, but investors are confident it will get done. Once the Senate passes the bill it will go back to the House for approval. Republicans have a healthy majority and this part of the process should be a slam dunk. President Trump wants to have this "Christmas present" under the tree next week. On December 12th Republicans could lose a Senate seat (Alabama) and the appointment would happen soon after. The GOP can't take this chance so they will take advantage of this window. There is still some uncertainty and that means there is still some upside. Above SPY $270 prices start to get stretched. Once the bill gets passed we could see a blow off rally and profit-taking. Debt ceiling negotiations will get ugly and both sides will play "chicken" to see who flinches. The "can" will get kicked down the road at the last second and the market won't like it. Politicians will temporarily fund the government so that a shutdown during the holidays can be avoided. This dark cloud will keep a lid on the rally. Any debt ceiling dip will provide a buying opportunity in January. The long-term benefits of a tax cut will keep buyers engaged. A rate hike in 2 weeks is expected and the market is comfortable with the leadership changes at the Fed. Earnings have been strong and they will be even better when corporate tax rates are lowered. Global PMI's for November were strong and ISM manufacturing should be solid when it is released 30 minutes after the open. Swing traders should move their stop up to SPY $263 on a closing basis. Be prepared to take profits on a blow-off rally. Sell at least half of your calls if the SPY reaches $270. Use a two dollar trailing stop on the remainder. Day traders should focus on the long side today. Avoid tech stocks and buy dips once support is established. The market is overheated and you cannot buy intraday breakouts. You must wait for pullbacks. Look for the last leg of this rally next week. Be prepared to take profits. . . image

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