I therefore feel strange that the market had to "react" to such news... as if it indeed was a surprise. It may be that a White House staffer leaked information, but a tax deal is far from going through.
If a tax deal was close, small caps would have reacted in full force. This was not the case yesterday, and the IWM/SPY ratio is still rather negative.
The Russell Futures would have been way higher.
The Cumulative Tick would also have gone vertical.
The US$ would also have attracted much more money on its bounce.
I believe this was a speculative bounce centered around the NQ8 (pushing the S&P500 and the NQ100 higher) simply because this has worked well in the recent past.
One small side data is the XME Money Flow weakness (Materials sector.) Some issue in the steel sector? Some issue with China?
Conclusions:
Tax reform news just ahead of a possible dovish leak from Jackson Hole could lead the market into a fake bounce.
I will short small caps on any bounce that pushes the IWM/SPY ratio in the upper section of its envelope.
