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Video View from Toronto: Equities Pressured by Tax Plan Doubts

11/20/2017 4:13 pm EST

Focus: STRATEGIES

Ziad Jasani

Managing Director and Partner, Independent Investor Institute

Expectations for a disappointment on Trump’s tax reform ahead of Thanksgiving is what the charts tell us. We see the USD (UUP) stronger, writes Ziad Jasani. Join the Independent Investor Institute for a 3-hour deep dive on markets Dec. 2, 12 pm (EST). Register here. 

Watch our Video Market Strategy video recorded Nov. 20 here:

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Global Currency Markets: The short-term polarizing condition of expense on the USD and relative cheapness of most other currencies remains into week’s end, keeping us long the yen (FXY), Swissy (FXF), pound (FXB), CAD (FXC), Gold (GLD) and Silver (SLV).

We transacted these trades through early the week of Nov. 13  and continue to reap the rewards. Expectations for a disappointment on Trump’s tax reform ahead of Thanksgiving is what the charts continue to tell us. We still see the USD (UUP) stronger weeks to months out.

Global Bond Markets (Defensives): U.S. Treasury yields remain stretched and point downwards (short-term), corroborating our short-term view for weakness on the USD to persist into the week of Nov. 20. We maintain our long-side trades on TLT, XBB-T, AGG, LQD into the week. And while the global equity market remains in a short-term bounce starting Nov. 16, we maintain long-side trades in Preferred Shares (PFF, CPD-T). If we do get the disappointment we’re expecting on tax reform this week, we would re-allocate away from Preferreds to TLT and heavily short U.S. banks (KBE).

Global Commodity Markets: Oil joined Mr. Market’s “dead-cat-bounce” a day late. Oil remains dislocated and expensive on traders’ routines alongside Energy Equities (XLE, XEG-T).

We can play long over the weekend on Oil (HOU-T) and Energy (XLE, XEG-T) but are well aware of how stretched the space is. Make sure stops are tight.

Natural Gas remains bullish, next add point to UNG or HNU-T would be above $3.12. Gold/Silver have taken off Nov. 17 on Robert Mueller’s subpoena of Trump officials. We got stopped out of our trades from Nov. 17 (with profit) on Nov. 20 and are looking to re-enter when the USD softens up from Merkel-Mayhem.

Global Equity Markets (Offense): Mr. Market along with Global equities started a drawdown, and China came to the rescue Wednesday, Nov. 15 with a massive capital injection that opened the FOMO gates wide (Fear Of Missing Out).

The S&P 500 has bounced up off the median of its uptrend channel that started Nov. 2016. We see this bounce as being short-lived and tax reform disappointment this week is the likely cause for equities to remain pressured.

We note that US/North American Equity Markets are significantly more relatively expensive, while markets ex-North America (ACWX, EEM, EFA, FEZ) are dislocated and cheap on traders’ routines.

If the S&P 500 remains above 2,580 to close Nov. 17 we maintain our long-side-trades in EEM, EFA, FEZ alongside some sectors in the US/Canada: XBI, XPH, XLY, IYZ, XLE, XEG-T, ZUT-T.

The overwhelming expense of Technology (XLK, IYW), coupled with the high-risk tax reform situation alongside Volatility (VIX) being elevated leaves us very cautious into a shortened week of trade Nov. 20– 22) due to Thanksgiving.

Join experts at the Independent Investor Institute for a 3-hour deep dive on markets Saturday, December 2, 12 pm (EST). The session will be held online. Register here.  Or send Ziad an email with your request: ziad.jasani@educatedtrader.com

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