tradethepoolpool ads

The House Vote is the Easy Part

On Thursday ahead of a vote in the House of Representatives to pass their version of tax reform the stock market was rallying.

ProShares Ultra S&P500 (ETF) (NYSEARCA:SSO) was up by 1.47%

ProShares Ultra Dow30 (ETF) (NYSEARCA:DDM) was up by 1.5%

ProShares Ultra QQQ (ETF) (NYSEARCA:QLD) was up by 2.25%

ProShares Ultra Russell2000 (ETF) (NYSEARCA:UWM) was up by 2.84%

The bounce back that is happening after recent market weakness has put many investors right back on the bandwagon, expecting the market to move higher without any problems, just like they were prior to these undulations.  The problem is, this is not over.

First of all, the House of Representatives is very likely going to pass their version of tax reform but that version looks nothing like the version that is going through the Senate and as much as the version in the House of Representatives looks like something that could be signed into law, the Senate's version is far from that.

Because both the House of Representatives and the Senate are producing their own versions of tax reform they will not need to vote directly on the other chambers' proposals but instead they will need to accept compromise is provided to them within the conference report.

Assuming that both the House of Representatives and the Senate vote yes and pass a version of tax reform in their respective chambers a conference committee will be appointed comprising the leaders of the tax proposals in each chamber.  Those leaders from both the House of Representatives and the Senate who worked to formulate their respective bills will attempt to reach a compromise.  That compromise will be presented to each chamber for a vote in the form of a conference report and that will need to pass for the bill to move ahead.

In basic terms, this conference committee has the job of finding a middle ground that will be acceptable by both chambers of Congress.  This is where it gets sticky.

However, we may be jumping the gun in this observation.  Although the House of Representatives is likely to pass their version of tax reform today, the Senate is not likely to vote until after thanksgiving and their work is much more difficult.  As it stands, they may not have the votes to begin with, and if they can't pass a version of their own they will need to vote on the version proposed by the House of Representatives.

Assuming that the Senate does manage to get the votes to pass a bill and move the process along, the conference committee will be faced with a daunting task.

The massive differentials between the bills likely to come from the two chambers of Congress makes it highly unlikely that it will be a smooth process.  The markets were rejoicing an anticipated political win in the House of Representatives on Thursday, but this is extremely premature.

The tax debates are just getting started and the hard part lies immediately ahead.  The House of Representatives is the easy part, from here the gloves come off and investors should expect the markets to pull back significantly from time to time as this process continues.

Currently, if everything goes smoothly, Congress hopes to have a bill in the hands of the President by Christmas.  That means there is a month of rhetoric, debate, and tax related volatility to look forward to in the stock market.

After that, what should you expect?  I have offered a detailed timeline that looks ahead to 2018.

Triggers may have already come
Support and Resistance Plot Chart for

Blue = Current Price
Red= Resistance
Green = Support

Real Time Updates for Repeat Institutional Readers:

Factset: Request User/Pass

Bloomberg, Reuters, Refinitiv, Zacks, or IB users: Access Here.

Our Market Crash Leading Indicator is Evitar Corte.
  • Evitar Corte warned of market crash risk four times since 2000.

  • It identified the Internet Debacle before it happened.

  • It identified the Credit Crisis before it happened.

  • It identified the Corona Crash too.

  • See what Evitar Corte is Saying Now.

Get Notified When our Ratings Change: Take a Trial