It Comes Down to This: "Two Out of Three Ain't Bad"

11/29/2017 4:22 am EST

Focus: STOCKS

Jeff Greenblatt

Director, Lucas Wave International, LLC

In this incredible 2017 rally, there are two flies in the ointment. This is a market like 1937 which ran into the geopolitical buzz saw. If the tax plan fails, let’s hope the market remembers the Meat Loaf song, says Jeff Greenblatt, editor of The Fibonacci Forecaster.

A whole year of speculation, confidence and euphoria comes down to the next few days, quite possibly even tomorrow. The new president promised less regulation, more jobs and tax reform. He’s delivered on two of three.

Tax reform is not the appetizer or dessert, it’s the main course. It’s part of the reason foreign billionaires promised to bring jobs to the States. It’s a motivating factor for any number of companies to repatriate and bring home even more money and jobs.

With revised GDP now over 3%, this could be the beginning of something good. It could also be the beginning of the end. The Senate started debate on taxes and the business media once again said it could come down to John McCain. You might remember he was the voter who recently killed the skinny healthcare repeal.

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Briefly, I wanted you to see the follow-through on last week’s retracement lesson in the S&P 500 Index (SPX). Recall the best part of the move materialized after the SPX hit for a 38% retracement at 38-30 min bars. There was a gap up and the big day on Tuesday. When retracement ratios square out with time, they are to be taken seriously.

chart 1

But now here we are with the SPX hitting the peak of the Andrews channel which has been in effect since the end of Brexit. This is not a very long-term channel but in force a year and a half. More reason to be concerned right now.

chart 2

Certainly, there will be a Santa rally. It’s already started. While some believe the Santa rally kicks in near the actual holiday, the truth of the matter is the holiday spirit is already in the air. As far as I’m concerned, the Santa stock market season starts the day after Thanksgiving. Already we’ve seen Amazon (AMZN) go through the roof because of Cyber Monday even as they are getting buyer’s remorse today. Today’s second-guessing has little to do with holiday euphoria.

In the post-Thanksgiving period there usually is at least a week where profit taking, consolidating or outright trimming of positions takes root. In some years where the market peaks in early January, we’ll see some charts peak in the middle of December and not even realize that was the high until we look at it in the rear-view mirror.

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I’ve been handicapping tax reform all year for one key reason. The market is expecting it and has long been baked in the cake. People are once again getting nervous because the vote is very close, it could come down to McCain.

Over the past month it appeared the biggest question marks were going to be McCain, Bob Corker and Jeff Flake. Corker and Flake will do just about anything to hurt Trump no matter what it means to the country. They will be not be held accountable since both are leaving the Senate.

If there is one reason for bulls to be optimistic it is a recent interview where McCain explained why he voted against GOP healthcare. He said he voted against it because it was a “skinny” watered down version and wouldn’t support it. There is hope McCain won’t allow his feud with Trump to influence the most important legislative vote of the year.

We’ve been talking about this for far too long.

In other news, the North Koreans launched a missile Tuesday that is making many people very nervous.

It’s been an incredible rally over the past year but there are two flies in the ointment. One is this is a market like 1937 which finally ran into the geopolitical buzz saw.

Then, of course, the Achilles heel all year has been tax reform. If for some reason it doesn’t pass, let’s hope the market remembers the Meat Loaf song, “Two Out of Three Ain’t Bad.”

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