Take Profits Once the Tax Cut Rally Stalls – Trouble Ahead

Posted 9:30 AM ET - Yesterday the market rallied to a new all-time high. Investors were expecting a "yes" by the Senate Budget Committee and they got it (by 1 vote). The tax bill will go to the floor and a vote is expected Friday. Asset Managers don't want to miss this rally so they are buying stocks now. Even if the Senate does not approve the tax bill this week, it will get done next week. Republican senators who had been opposed to the bill were persuaded by Trump. This could be a turning point for the GOP and they desperately need solidarity. I mentioned in my comments yesterday that North Korea was preparing a missile launch. I also mentioned that the market doesn't care. The news sparked a round of selling and stocks instantly reversed. Buyers were hoping for a dip and they gobbled up shares as fast as they could. Economic data will be solid this week (GDP +3.3%). It will set a positive backdrop, but it is not the "driver". I plan to stay long for the next few days. Republicans will score a major victory and the market will rejoice. Unfortunately, the party won't last long. The debt ceiling needs to be negotiated right away and Democrats are emboldened knowing that 60 votes are needed. That means 8 Democrats have to cross party lines. Trump has already stated that the government might need a shutdown. Translation: he is willing to play "chicken". Democrats will try to add DACA to the negotiations and this process could get ugly. The market won't like the mudslinging and it could pullback. Ultimately, the “can” will get kicked down the road at the last minute. Swing traders should have a full call position. Raise your stop to SPY $260 on a closing basis. As the market moves higher we will raise the stop. Once the tax bill has been passed and the rally stalls, take profits. Day traders should look for opportunities to get long. There was a nice dip yesterday that you could have scooped. Don't chase rallies, only buy dips. Enjoy this run. This will be the last leg of the rally. Democrats have been trying to obstruct Republicans and they will suffer a blow if the tax bill is passed. They will try to stick it to Republicans during the debt ceiling negotiations and the mudslinging will get ugly. Ride the wave and get ready to take profits. . .

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