Start Taking Profits On Calls Today – Market Did Not Rally On Good News

Posted 9:45 AM ET - The breakout and the follow-through we needed are not materializing. This is the most bullish seasonal period of the year and good news has not sparked a rally. Without tax cut approval the market will flat line the rest of the year. Given the recent price action, the upside potential is limited. I don't like "flapping in the wind" while I wait for politicians to find middle ground. Soon DC will leave for Thanksgiving recess and a few weeks later they will leave for Christmas recess. Before the end of the year they also have to extend the debt ceiling. Republicans have a very busy agenda and Democrats will sip egg nog while they watch from the sidelines. Tax cuts could take the rest of the year to get approved and there's a chance it won't happen. Meanwhile, the market will be vulnerable to other events. New missile tests by North Korea, a Fed rate hike in December or lengthy debt ceiling negotiations could spark selling. I will gradually start scaling out of long positions today. I don't feel comfortable buying stocks near an all-time high when they can't rally on good news. I'm not bearish and I will not be shorting stocks. If we get a nice pullback I will start buying again. Retailers will start posting earnings this week. Brick-and-mortar companies have been struggling and the results could weigh on the market. Earnings season is winding down and the strongest companies were not able to fuel a rally. China posted trade numbers and imports were strong. That should bode well for basic material stocks. If tax cuts are approved there should be time to enter the market. I feel that if the House plan is approved it could boost the market by 5% (SPY $270). Swing traders should start reducing risk. Scale out of long positions and raise your stop on the SPY to $258 on a closing basis. Go to cash if the market is not able to rally above SPY $260 this week. Day traders need to be very cautious. Buy pullbacks once support is established and exit before the close. This strategy has worked well. Most days the S&P 500 is trapped in a very tight range and the intraday opportunities are limited. We've had an excellent run and it's time to take profits on swing trades. The overnight risk is not worth the reward. When your trading success relies on politicians to do the right thing, it’s time to find a new strategy. . .

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