For the first time in awhile, we’re looking at a lower tax rate scenario into 2017.  It’s different, but it creates an interesting set up for the stock market into year-end… one that is already surrounded by a lot of chatter about a santa squeeze into year-end.

Let’s just walk through this theory one step at a time.

From a tax perspective, it may be wise for money managers to:

  • take all the losses they can
  • hold winners through year end (more so than normal)

Also there is a positive drift in the markets right now. Investors are buying into ‘The Santa Claus’ rally.

Lazy thinkers are saying who is going to sell? But, on the other hand, who is going to buy?

The NAAIM survey tells us managers are pretty fully invested. It appears we’ve got a bit of a greater fool theory going on right now.  There’s a chance the market gives us a bit of a psychological squeeze into the end of the year.

Who wants to sell winners right now even though it’s a relatively prudent time to take wins.  The market never takes it easy on the majority.  Why would this time be any different?

On an individual stock basis, this sets up very interestingly for year-to-date losers, particularly those with high short interest.  If you’re short a stock with a big win, why would you want to cover now and not wait until 2017?

All in all, there will be plenty of opportunities in the remaining trading days to figure this out, but it’s probably wise to keep upside bets selective.

 

Check out more of my scribes over at North Star TA.  Thanks for reading and trade ’em well!

 

Twitter: @ATMcharts

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

Not Investment Advice – Please read investment disclaimer.