President Trump’s economic adviser, Gary Cohn, said that starting this week the administration expects to launch a tax campaign that will lead to major legislation by the end of 2017. That would have major implications for investors, and you should consider trying to get ahead of it.

To be prepared to act on what may transpire, investors ought to first look at a simple chart.

The chart

Please click here to see the chart of SPDR S&P 500 ETF SPY.  Late August to October is historically the weakest seasonal period for the stock market. Going into the weak seasonal period, the chart shows the market is in the process of rolling over. This is happening at a time when breadth is narrowing. Fewer and fewer stocks are propping up the market. Many stocks, including Inc. AMZN,  have gone through their own corrections. Recently, the percentage of stocks trading below their 200-day moving averages crossed above the 50% mark. These conditions typically lead to a correction.

The chart shows three support zones. If there is a correction, the highest probability is that the market will bottom in the second support zone shown on the chart. Please note that the 200-day moving average falls in the second support zone. Many investors consider the 200-day moving average as a support level. For this reason, 200-day-moving-average support often becomes a self-fulfilling prophecy. Otherwise, there is nothing special about the 200-day moving average.

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

Tax reform discounted or not

Here are three schools of thought:

• The first school of thought is that the stock market has been running up on hopes of tax reform. Based on this school of thought, Trump’s new push for tax reform will not nullify negative technicals and valuation concerns that are developing in the market…Read more at MarketWatch

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