It’s real: Higher taxes are coming

"Sources" say Biden to propose increase in capital gains tax on wealthy

Downtrend 3

“Sources” have relayed to the media that US President Joe Biden will propose raising marginal income taxes to 39.6% from 37%.  In addition, these sources also say that he will also propose nearly doubling taxes on capital gains to 39.6% for people earning more than $1 million. “Sources”….do you believe them?  Stock markets do (at least today).  Stocks initially sold off on the first headline that capital gains could be as high as 43.4% for the wealthy, then had a second wave of selling come in, as more headlines came across.  Additionally, algos jumped on the quick move lower.  The result: the S&P 500 is 50 handles off the highs.

How does the stock market work?

But how much further can indices go?  Although 50 handles may sound like a lot, yesterday’s low was 4126.35 in SPX.  Today's low so far is 4123.69, only taking out yesterday’s lows by a few handles.  Tuesday’s low was 4118.38, and the large index couldn’t take that out today!  Below Tuesday’s low, support crosses at the upward sloping trendline of an ascending wedge, near 4100. If price breaks below, there is a gap fill from April 1st at 4020.63. 

Source: Tradingview, FOREX.com

Recall that for the last 13 months SPX has been trading higher off the pandemic lows at 2191.85.  Since then, price is up nearly 100%.   Therefore, traders should not be surprised if the market pulls back 10%, which would put the large cap index only down near 3,730. With such a quick move in just over a year, traders may even expect a correct such as this.  On a weekly timeframe, this would confluence near the long-term upward sloping trendline (green) from January 2018 and the 50% retracement level from the October 2020 lows to last week’s highs!

Source: Tradingview, FOREX.com

The question is one of timing.  Is a near 40% tax on capital gains enough to makes traders/investors bail on current positions?  Perhaps it won’t be until the Fed indicates that they are ready to begin tapering? Maybe it will be a “crypto collapse”? “Sell in May and go away”? The catalyst for a larger pullback is unknown.  One thing that seems certain right now though, is that higher taxes are ahead. 

Learn more about index trading opportunities.

 


Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.