US stocks rallied early on the expected news that the Senate passed a sweeping tax overhaul, similar to that already approved by the House, including big cuts to the rate of corporation tax. Bulls have pointed to this impending change to explain why stocks have been so perky since Mr Trump’s election and now it has actually happened.
Naturally we have to ask if the good news for investors is already ‘baked into’ the price and the answer would seem to be ‘yes’. Values are high (as widely commented) and we have been seeing top extensions at every scale. Now that the expected moment has arrived, bulls can feel justified in their optimism and yet history shows that good news often coincides with the start of a dip, especially if it been anticipated. This tax reform has been so widely anticipated that anyone who is interested in such matters must have had plenty of time to digest these changes and act upon them. We would re-affirm our recent advice to sell (and sell short) on rallies here, especially on any signs of a reversal of the current uptrend – typically a new high followed by quick weakness. A summary:
Picking tops is dangerous of course, and we are only looking for a decent dip, so protect yourself at all times with loss-limits when short-selling. The less dangerous option remains to sell short a market (the UK is our choice) that has not rallied along with the US:
More soon.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
