Pockets Of Forced Selling Highlight Risks For Investors

Just so happens, more risk pockets developed after this post was written last Sunday:

The USD/JPY broke its 200D Wednesday in a 125 pip drop. That was a Big Move.

And Chinese shares in Hong Kong and Shanghai tumbled 2 to 3% respectively just yesterday. Nobody knows why although there are lots of opinions!

What is at risk for the US stock market?

  1. What if the market interprets that Tax Reform is likely to be passed but won’t boost growth, wages, and investments? By adding to the deficit without commensurate spending cuts, by adding to the pockets of Wall Street but not so much Main Street, we could see a market reaction that says the risk of a passed Tax Reform plan is greater than one without.
  2. The perception remains since Trump’s election almost one year ago that corporate profits from tax reform will continue to buoy stocks but now there is a threat of these benefits being pushed out a year or more which is predicted to slow growth. This is to say nothing of the cacophony of arguments that corporations aren’t even the ones that need tax reform in the 1st place.
  3. Reality is that Trump has been in power over 300 days without effecting positive change in any policy and the market is still Priced To Perfection.  Based on current price action, the US market looks to head higher into the seasonally strong holiday period through year-end but reality is Volatility reprices everything, as we have seen with the recent bouts of forced selling.

The market prices in the truth only after reacting (overreacting) to the best case scenario when it’s ‘happy’ and the worst case when it’s not. Don’t forget to hedge.

Happy Trading,