Feel Good Rally Won’t Last – Be Patient and Wait For A Nice Dip
POSTED BY PETE STOLCERS ON NOVEMBER 16
Posted 9:30 AM ET – Yesterday stocks took an early tumble and they quickly recovered. As the day progressed the bid weakened and the market closed on a whimper. This was one of the first times in months that the market did not finish strong after a dip. I suspect more selling pressure.
The market is up this morning and there are a few positive news items. Network Appliance, Cisco and Walmart reported good earnings. The House is likely to approve the tax bill and that will also provide a “warm fuzzy” for investors.
I believe the early rally will reverse and I will be watching for day trading opportunities on the short side. In general, brick-and-mortar retailers have been declining after earnings – Walmart is the exception. Tax cuts will run into resistance in the Senate. Every vote is needed and Ron Johnson (Republican) says he will oppose it. Politicians will be in recess for much of the remaining year and they have to extend the debt ceiling. Investors are skeptical that all of this will get done by year-end.
If a tax bill is passed there will be major concessions. Many Senators will feel empowered and they will grandstand. Tax cuts will keep getting watered down. In typical fashion, new items will be added to the bill like ornaments on a Christmas tree. Democrats should just take the rest of the year off because they won’t cast a single vote in favor of the tax bill.
I don’t like it when the market is dependent on political news. Those winds can change very quickly and they are unpredictable.
The political dysfunction will make investors nervous the next few weeks. We need to patiently wait for a decent pullback.
Swing traders should remain in cash. I believe our opportunity will come after Thanksgiving. The SPY has moved .5% in the last 6 weeks and there is no tailwind. Time decay is an issue for premium buyers.
Day traders should look for an opportunity to short the opening rally this morning. If we get the reversal I’m looking for we could test SPY $255 today. The House was widely expected to pass the bill today. The Senate is the problem and that dark cloud will linger.
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