The tax debate has dragged on all year. Do you realize there are only 40 more days to go this year on the Congressional calendar? Since we were promised something that should've been done by Labor Day, this is the 9th inning. It’s getting late...
That being said, these markets that are influenced by politics (I didn’t say it, Lord Rothschild did) got a gift from the land of Dixie. In a political earthquake, Judge Roy Moore handily defeated the GOP establishment candidate in the Alabama primary for Senate seat formerly held by Jeff Sessions. It’s a huge defeat for the ‘do nothing’ Congress as they spent over $30 million to defeat one of their own as it only a primary. Moore spent roughly one-tenth of that amount to send a message that no matter what happens to Donald Trump, the movement that put him in office is bigger than just one man.
So why are we talking about this in the Weekly Review of the stock market? Simply put, it’s the first time all year I’m becoming optimistic there will be tax relief before the end of the year. As you know I’ve been lining up with David Stockman since February on this issue and it has taken a political earthquake to wake up the powers in Washington. All I can tell you is if they don’t get the hint now, they never will.
Markets were mostly optimistic last week. Many charts hit new highs and for us, none could be more important than the Transports. Only a few weeks ago, they were pointed down and the corresponding divergence was on a path to wreck the market. Not only that, but banks healed as well. Thus far, everything that could’ve gone wrong in September didn’t and we come into October with the charts in their most decent technical shape in several months.
That’s one side of it because the sentiment is as complacent as ever and here’s the danger. You didn’t think you were getting out of this so easily, did you? As the markets were threatening to drop and didn’t, we have ourselves a condition where we are truly in a place where people believe the market has only one direction to go and that is up. It ‘feels’ like we are going to the Moon. If a bear market ends when it has a thrust lower, rallies and the other shoe drops to create the feeling like it’s never turning back up, we are nearly there in reverse. We’ve been here before, most notably in October 2007 which is really the last time it felt like it was going to the Moon and perhaps beyond.