Flip Floppers

Well it didn't take long for equity investors to go from fearful to greedy.  The equity put/call ratios have fallen drastically from last week's levels, going from .78 and .82 on last Thursday and Friday to .57 and .55 on Monday and Tuesday of this week.  By the way, Monday was actually a flat day so investors were already starting to get bulled up before yesterday's big up move.

What is quite telling is the nontrivial gap down that we have in the SPX, right after we hit the June highs around SPX 2455.  Based on my social media read, traders seemed quite confident that yesterday was the start of another thrust higher off a panic low, which is quite a change of attitude from previous panic lows.  The crowd has finally started to catch on to the pattern that has repeated itself since the 2016 presidential election.  Buy any 1-2 day dips and be rewarded instantly, and for several days.  The market tends to repeat a pattern until it gets recognized by the majority of traders and then the pattern usually stops working.

Yesterday's rationalization for the strength was talks of tax reform.  It is quite surprising how fast the White House and Congress have regained their credibility after previous failures on health care.  Also surprised how fast everyone forgot about last week, when Trump's comments made everyone think tax reform was dead.

Congressmen have been bought and paid for by all the lobbyists and special interest groups, which is the main reason you haven't had any tax reform in 30 years.  No one wants to take the brunt of the pain when it comes to removing tax deductions and loopholes, and if there are no removals of tax deductions and loopholes, you can't have tax reform.  The Washington lobbyists will not stand for it, and that will be it for tax reform.  Tax reform is not the main desire of the equity market anyway.  The equity market wants unfunded tax cuts, that will blow out the budget deficit, which favors stocks over bonds.

Apparently Trump is now threatening a government shutdown over the border wall.  If he also threatens a breach of the debt ceiling he just might get it!

I sold my short term long yesterday, too early, but I just didn't feel like the rally would last beyond the day.  In hindsight, I should have just waited later in the day to sell, even if I felt like yesterday was just going to be a one day rally.  Something I will keep in mind next time.