Easy come, easy go

End of Day Update:

On Thursday the S&P500 surged higher and extended its breakout above 2,600. John McCain endorsed the Senate’s Tax Reform bill and that put traders in a buying mood. McCain’s objection derailed Healthcare Reform earlier in the year, so his support this time around is seen as a big deal. That leaves five undecided Senators remaining and Republicans need to persuade at least three more.

Of course a lot changes in a few hours. Not long after the market closed, Tax Reform took a serious hit when deficit hawks failed to get the debt triggers they are insisting on. With only two votes to spare, it doesn’t take much to put the entire bill in jeopardy. This latest wrinkle was weighing on overnight S&P500 futures, which already gave back half of Thursday’s gains. Easy come, easy go.

It will be interesting to see how the market responds to these headlines during Friday’s regular-hours trade. Even though futures are lower, the broad market has largely given Republicans a pass every time they ran into a problem. There have been several other stumbles along the way, but stocks remained stubbornly near all-time highs. As long as traders keep giving the benefit of doubt to Republicans, we shouldn’t expect too large of a reaction on Friday.

These are the type of disagreements I’ve been expecting from our politicians, but thus far the market hasn’t worried about it. If the market doesn’t care, then we don’t need to care. We are coming to the final weeks of 2017 and underweight money managers are being pressured to chase prices into year-end. Their buying combined with confident owners keeping supply tight will help the market continue drifting higher over the next few weeks. The only thing that matters is Tax Reform and the only thing that can dent this optimistic market is Tax Reform failing. Anything short of an outright failure and the market will continue with its half-full outlook.

This is definitely a buy-and-hold market and long-term investors should stick with their favorite positions. Things are a little more challenging for traders because the lack of volatility limits swing-trading opportunities. But that’s the way it goes. Sometimes buy-and-hold works better, other times trading in and out of the market is the way to go. This is why I have my money diversified between long-term investments and a trading account. One works great when the other struggles and vice-versa. That means I always have something that is working.

I’m leaving my long-term investments alone, but my trading account is sitting in cash. I could buy-and-hold in my trading account too, but that defeats the purpose of having a trading account. Instead, I’m leaving it in cash so that I am able to jump on the next trading opportunity that comes along. We can only buy the dip if we have cash. The most interesting opportunity would be if this Republican infighting spooks the market and gives us a larger tradable dip. Until then I will enjoy the drift higher while waiting for a better trade.

Jani