It's Only Going To Get More Volatile From Here

Written by Dennis Slothower
Posted December 2, 2017

The Senate made another step forward by voting to go ahead and debate the Tax Reform bill, which the markets naturally celebrated. But it was John McCain’s public commitment to vote “yes” on the tax bill that sent the market into another spike rally on Thursday, the second consecutive booming advance session for the Dow.

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Early Friday morning, Republican leaders secured "yes" votes from a couple other holdouts and started pushing towards a vote. As of when this went to press, that had not happened yet, but it is bound to dominate the news if and when it happens.

That is, of course, if the media frenzy over the Russia investigation doesn't entirely dominate the news cycle.

Regardless, that sent the market down over 1% before noon. It'll be an interesting December, to say the least.

Not mentioned in media headlines was the fact that the Nasdaq continued to greatly lag the broader market, while FAANG stocks took a big hit mid-week. We say the Nasdaq was saved another embarrassing loss because there was a minor bounce from the dramatic sell off in the FAANG on Thursday, though they came nowhere near reclaiming the major losses seen earlier this week.

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Notice the dramatic difference between the concentrated trading in the Dow and this example of one of the largest of the FAANG stocks, Google. Many big traders in the tech sector are not convinced at all about this tax reform celebration this week.

When markets differ as strongly as this it sets up an imbalance and often generates what is known as the Hindenburg Omen — a bearish indicator that has preceded every significant market correction. We haven’t seen it yet, but the FAANG group of stocks gave us a clear warning signal today.

Betting On A Pullback

In an unusual twist, the volatility indexes were up on a day when they should have been down on Thursday, since they predominantly run inversely to the advance/decline in stocks.

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Note how the VIX has climbed all week long, in spite of the strong advances seen in the large-cap indexes (Dow and S&P 500). This suggests that a good number of traders are betting on a pullback on Monday!

It might just be a coincidence, but perhaps some insiders know something about the inside workings of Congress, even though the Senate might pass its tax reform bill. Remember, the House bill and the Senate bill are significantly different and must be merged together in “conference” to create a version acceptable to both the House and the Senate before it can be advanced to the President for signing.

Tax reform and the Russia investigation political theatrics are virtually the only two things that will significantly drive the markets going into next week. However, they aren't the only two things going on.

Something strange is going on even in the markets as Congress' limited sessions work toward the December 15th end date. The next couple of weeks are likely to see volatility jump on the uncertainty surrounding these important issues.

It looks a lot like a dog-and-pony show right now. Let’s save our celebration for when the Beltway hearsay dies down and Trump actually signs something — something with real tax reform teeth in it.

To your wealth,

Dennis Slothower Signature

Dennis Slothower
Editor, Wall Street Underground Profits

Dennis Slothower has been leading a small but profitable group of investors to some extraordinary profits in both good markets and bad over the course of a 38+ year investment career, starting as a stock broker in 1979. In 2011 Dennis was named the top performer by Hulbert Financial Digest for avoiding the Crash of 2008. Now, he is bringing his extensive experience to the public through Outsider Club and Wall Street Underground Profits. For more about Dennis, check out his editor page.

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