Thursday, September 7, 2017

The Bull and Bear Dilemma

Most traders already know September is a scary month for stocks because on average, it is a decided loser for the market. Going back to 1950, the S&P 500 has been losing an average of 0.67% for the month, and has logged more losses (38 of them) than gains (29) during that 67 year span. 

Why are investors not selling yet? The bulls are holding up the market for the most anticipated news this year, Trump’s promised US tax reform bill which is supposed to make consumers richer and US corporations more competitive and hence, "Make America Great Again". President Trump struck a deal with the Democrats to add a three month extension to the debt ceiling that which deadline was 31 Sept 2017. This could pave the way for the tax reform, which may be announced in the next few weeks. The Tax Reform is a key campaign promise of both Trump and the Republican Party.  The Republicans are also excited to push the tax bill through ahead of the congressional election in November.

Dampening this bullish mood is the the geo political tension in the Korean Penisula. North Korea is expected to conduct a missile launch over the weekend, and traders are not taking chances after the lessons learnt from last weekend North Korea nuclear test.

With US market at 9 year high and valuation in a bubble territory, the bears are looking for a correction that has eluded them for so long.

This blog believes that the conditions for a Bear market are largely in place. News of US Tax Reform could give the market a last leg up.

In the meantime, the market will remain quiet and range bound. This blog will avoid holding big overnight long or short position until news of the Tax Reform is announced. Day trade remains the most preferred strategy for now.

All posts and charts are for educational and illustration purposes only

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