Traders Prepare For Next Week's Systematic Drain

Next week marks the quarterly tax payment date for corporations – as you can see from the chart below, the Treasury receives tax inflows from corporations 4 times each year. During March, June, September, and December.

These periods of time tend to coincide with periods of high volatility in the broader market.

Why?

Just like individuals, when corporations need to pay taxes they might sell securities to cover the expense. This selling has the potential to increase volatility, putting downward pressure on the markets.

The chart below shows Government Tax Inflows along with Individual Tax Flows.

In addition, hedge fund client activity increases as seasoned traders position for the probability of increased volatility. 

When the government collects income taxes from individuals and corporations, we routinely see risk increases and markets sell-offs.

Should we see a sell-off next week?

Please keep in mind that this is an economic “drain” to the corporate sector which happens every single quarter as depicted above. 

The corporations pay taxes, sometimes having to sell securities to cover the expense – thus the heightened possibility of a selloff in markets. 

So, if we get a downturn next week, there’s a reason for the sell-off and we will see this as a potential buying opportunity.

Members – we will share trade ideas this Sunday to potentially capitalize on this quarterly event.