Tax Cuts Getting Watered Down – Market Does Not Like It

November 10, 2017
Author: Peter Stolcers, Founder of OneOption

Posted 9:30 AM ET - When bullish influences converge and the market fails to rally there is a problem. Earnings have been strong, economic releases have been solid and seasonal strength is at its best level of the year. The market should have rallied last week and a red flag was raised when it didn't. I've been encouraging you to exit long positions this week. The market is addicted to good news and it wants more. The proposed tax cuts are less generous than expected. The House and Senate plans differ materially and the negotiations will take time. Trump wanted a 15% corporate tax rate and he compromised at 20%. Now it appears that tax cut might be delayed for a year. Corporate taxes impact profits and the market does not want to wait a year. Even if an agreement is reached between the House and the Senate Republicans will need every single vote. Democrats will try to distract the GOP with tough debt ceiling negotiations in December. Not one Democrat will vote for the tax cuts. Thanksgiving and Christmas recesses will reduce the working days. Republicans will have to unite to get this "watered-down" tax plan approved by year-end and the market has doubts that it will happen. The Fed will raise rates in December. This is a small headwind and we will see a leadership change at the helm. Powell will replace Yellen and the market hates uncertainty. Dudley and Fisher will be resigning. This transition might make a few Asset Managers uneasy. Earnings season is winding down and the results have been good. Economic conditions are improving as hurricane reparations gain momentum. I like to watch storms approach when I'm in the safety of my home. I also like to watch the market drop when I am in cash. The headwinds I've mentioned will spark some profit-taking, but the damage will be relatively contained. Bullish speculators will get flushed out and a 5% market drop would set us up with a nice year-end buying opportunity. Tax cuts are likely to be passed this year and something is better than nothing. The process will be hard-fought and Republicans will scramble to meet deadlines. Debt ceiling negotiations will also come down to the wire. When the dust settles buyers will return. Day traders are finally getting some opportunities. I released my new money flow indicator this week and it's perfect for trading emini futures intraday. The market looks soft this morning and you can buy when support is established. This strategy worked yesterday and it has been working for the last two months. It's nice to finally see some movement. A new low for the day after two hours of trading would be bearish especially if $255 is breached. In the last 30 years I've learned NEVER to short the market into year-end. Swing traders should be in cash and they need to patiently wait for support. The farther the market falls the better the opportunity. First support is at SPY $255 and major support is at $250. . . image

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