Tax Cut Rally – Start Taking Profits At SPY $270 – Move Your Stops Up
POSTED BY PETE STOLCERS ON DECEMBER 4
Posted 9:40 AM ET – Friday the market prepared for the Senate tax bill vote and the price action was bullish until the Flynn news hit. Stocks reversed quickly and the S&P 500 dropped 50 points. The dust settled and those losses were erased by the close. Republicans did get enough votes and the market is pushing higher this morning.
The price action from Friday shows some nervousness at the all-time high. Good news is priced in and politicians will have to push back the budget deadline this week to avoid a shutdown. This should not be difficult. Extending the debt ceiling in January is another matter. That process will get ugly.
A week from tomorrow Alabama will elect a new senator. This will be an important date because Republicans could lose a Senate seat.
The election results will be known on December 13th and the Fed will raise rates that afternoon. Investors are comfortable with higher rates, but the combination of the two events along with the budget extension could keep a lid on the rally this week.
Swing traders should have a full call position. The SPY closed above $263 and we weathered the storm. This is why I like to use stops on a closing basis (not intraday). Moves during the day are often filled with “noise” and we would have been stopped out of a great position. The market could shoot higher today or it could hit some resistance. Raise your stop to $265 on a closing basis. If the market runs we will keep moving our safety net higher. If it reverses, we need to lock in excellent gains.
Day traders should look for an opportunity to get long. Let the early action play out. If the market makes a new high for the day after 30 minutes of trading start buying. Tech has been weak and I would avoid that sector.
A tax cut is priced in and we need to make sure that this is not a “sell the news” event. We will know shortly after the open. If the market steadily ticks downward – that is a bearish sign. If it goes into negative territory we could see the momentum accelerate. If the market holds steady for the first 30 minutes of trading and then starts to grind higher, we will rally the rest of the day.
Any blow-off rally above SPY $270 will be an opportunity to take profits. Sell half of your call positions if we hit that level.
The volume should be good this week.
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