Yesterday, the S&P 500 logged its first daily loss of 1 percent or more in 2017. In fact, it’s the first such loss for the blue chip index in five months. In the post-election euphoria, the market has priced in faster growth as most market participants seem to assume that President Trump’s legislative agenda will have a smooth passage through Congress. This week’s drama over the Affordable Care Act (aka Obamacare) appeal shows that in fact that isn’t the case.   

The Republicans’ own healthcare bill has faced opposition from both the right and the left. The Democrats are uniformly opposed, while a small number of Republican dissenters—potentially enough to kill the bill—oppose the proposed alternative for either being too conservative or not conservative enough. The bill may yet pass through the Republican-controlled Congress, but it’s not as an easy ride as many had assumed.

From an investment perspective it concerns us that President Trump and the Republicans are using up political capital on a complex issue with no easy answers. We would much rather see President Trump and the Republicans focus on initiatives with clearer and simpler economic benefits. Indeed, top Republican officials have warned their party that if the Obamacare repeal does not pass, it could hinder the rest of the new president’s legislative agenda, including the pledged massive tax cuts.

The drama involving claims of wiretapping and collusion with Russia have also served as distractions.  

Looking ahead, Congress would also have to avoid a government shutdown when funding expires on April 28 and it would have to tackle the debt limit again some time this year because the debt ceiling suspension expired last week. Congress will have to vote to either increase or re-suspend the debt ceiling before the Treasury Department’s cash runs out. Republicans would need 60 votes of support in the Senate for both measures.

Whether it was the debt ceiling crisis of 2011 or the government shutdown of 2013, it has been a while since Washington gridlock had a clear direct impact on stocks. And since the election, optimism that the Trump Administration will usher in a new era of lower taxes and faster earnings growth have fueled the market’s rally to new highs. But, investor assumption of smooth sailing for Trump’s agenda is now being seriously challenged.

Last week, we recommended the VanEck Vectors Gold Miners ETF (GDX) June 22 call option after our gold-stock indicator became bullish. This option is currently doing very well. The Fed’s dovish-leaning projections greatly helped gold and gold stocks, as do the current stock market concerns.

Our gold stock indicator has now moved into “-1,” meaning that the position is a “hold” at this time.

Our stock indicator was in neutral territory last week, but it has moved back into bearish “-1” territory, making both of our open put options against the S&P 500 likewise holds at this time. We have the SPY June 220 and SPY June 235 put options.

Recently Dr. Leeb updated his stock indicator as its consistent negative reading was missing the market’s optimism driven rally. Back testing the new indicator in its current form, the readings actually became neutral at certain points at the beginning of the year. Had we had the stock indicator in its updated form back then, we likely would have gotten out of the SPY June 220 put, likely in January. Unfortunately, this trade will likely be a significant loser. But at this point, even outside of the indicators readings, the lone of the market does not look good, and we see a benefit to keeping this put, if nothing else, as a hedge.

On the other hand, under the updated stock indicator, we still would do the same SPY June 235 put trade, recommended on February 28 as an indicator-driven trade. This trade is slightly underwater now, but has a good chance to be potentially quite profitable.   

Given the “-1” stock indicator reading now, we rate both SPY puts as holds. Our readers who don’t already have a position, can at your own discretion, consider the SPY June 235 put or another put option against the market.  
 

Besides the options, we currently hold open (long) positions in the following stocks: NovaGold (NG), Gabriel Resources (GBRRF), Schlumberger (SLB) and Trilogy Metals (TMQ).