Political Drama

Yesterday the Tax Reform bill appeared to be a slam dunk and a vote to was expected to happen at any time.  I mentioned yesterday the next couple weeks could be bumpy as all the political drama unfolds.  Last nights delay has the Washington spin machine at high speed with both sides churning out more and more dramatic rhetoric.  Listen closely, and you can hear the dramatic music reaching a crescendo.  One side vows to save the day while the other promises to fight to the death because of horror this bill will bring.  Blah, Blah Blah!  Unfortunately, the stock market is directly in the line of fire.  Traders should be very cautious.  Violent price shifts are possible in either direction so plan your risk accordingly.

On the Calendar

Friday’s Economic Calendar has several important reports this morning, but before that happens, we will hear from two Fed Speakers.  Bullard speaks at 9:05 AM and Kaplin at 9:30.  The PMI Manufacturing Index is at 9:45 AM and forecasters expect a very strong 54.5 print today.  At 10:00 AM the IWM Mfg. Index has topped consensus several weeks in a row.   However, the forecasters today call for a slight pullback to 58.4 vs. 58.7 last month.  Construction Spending is also at 10:00 with the October’s consensus increase at 0.5% due to strength in single-family home building.  And then who would have guessed we will hear from yet another Fed speaker at 10:15 AM.

On the Earnings Calendar, we only have 18 companies reporting today none of which are particularly notable.

Action Plan

The promise of Tax Reform spurred the bulls into a full-on stampede yesterday as traders seemed to buy stocks with both hands.  The Dow smash through 24,000 finally coming to rest up a whopping 331 points on massive volume.  It’s also interesting to note that the VIX also rallied suggesting fear at this evaluation is growing.  OPEC’s decision to extend their production reduction program also played a part in pushing the market higher.  Oil companies surged higher on the news.

This morning futures are looking lower because the Tax Reform bill suddenly seems to have lost votes.  The Senate now says the vote could happen today, but they are scrambling to rewrite provisions of the bill on the fly.  I repeated over and over yesterday in the trading room a warning to not chase this rally.  Those that did could have a tough lesson learned today.  If by chance they fail to get this bill passed we could experience a very dark in the market.

Trade wisely,

Doug