Stalling With VIX Under 10

They could not have ordered up a more boring year than this one for S&P traders.  I am glad that I branched out from being almost exclusively an S&P trader back in the early 10s.  I wouldn't know what to do if I had to trade S&P this year.  Probably just swing trade and wait for the once in 1-2 month dip, scale in and buy, and sell after it hits an all time high.  I don't think there is any other strategy that would have been very profitable this year.  Shorting such a low VIX market is so tough, especially when it grinds higher bit by bit and hardly dips.

The bad part about this market for the trader is that the crowd is very reluctant to go to emotional extremes, either on the downside or the upside.  It is almost as if the crowd has finally realized the stupidity of dumping in a panic on a correction, or chasing prices higher, that they are mostly sitting still, holding their stocks or their cash and just waiting.  Many are waiting for a correction to buy, but what is the point if you are going to let the market go up 10-15% while waiting, and then buying a 5% correction?  You end up paying 5-10% more that way.

The best approach is either:
1) You think the market is too expensive, and wait for a bear market to buy, or
2) You think the market will become more expensive, a bigger bubble, and buy now and hope it goes higher.

The worst approach is just waiting and waiting, until the market goes so high and the volatility starts picking up, and then buying the 5% dip during the topping phase, and panicking out once it becomes a bear market.  Sure, we could have a 5% dip and then keep rising and rising like we did several times in 2012, 2013, and 2014.  But VIX was higher then, and the market much more skittish than it is now.  This is such a complacent market that the tolerance for bad news headlines is very high, and it would take multiple stabs at this beast before the crowd sells in full force.

I am obviously in the 1) camp, thinking the market is too expensive and waiting for a bear market to buy.  That is why I am not buying here even though I see SPX likely to grind higher into the beginning of 2018.

There was a leak of the Republican tax cut plan released this past weekend.  It calls for a top individual tax rate going from 39.6% to 35%, corporate rate from 35% to 20%, and pass through (small business) rate from 39.6% to 25%.  This looks like a fantasy for the Republicans, but if they are all on board, then it will pass Congress because they only need a simple majority using reconciliation.  It would be a big weight on Treasury bulls if the full cuts go through, as the budget deficit will balloon to huge numbers, probably up to $1.5-2 trillion.  That would cause a definite steepening in the yield curve as the large supply would weigh heavily from 10 years to 30 years.  The short end would be anchored by the Fed funds rate, so less bearish for that end.  Anyway, it will probably take several weeks before the plan becomes a reality, so not an immediate negative for bonds, but a big potential negative catalyst for sure.