Well, that was fast. Why Wall Street's honeymoon with Trump is over

Divorce couple
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During the 2016 campaign Wall Street and Donald Trump had an on again off again type of relationship.

And then he got elected and the buying began. Trump was always known for big rallies. He packed large venues across the country while leaving thousands of ticketless cheerleaders on the outside. But now he's got different kind of rally going on.

The Trump rally, what it's being called, in the stock market began almost immediately following the November 8th election. It's been a honeymoon phase for the markets for the last two and half months. It's been a period in which the problems known to exist have greatly been ignored – until Trump held his first press conference in six months on Wednesday.

That may have been a wake up call for Wall Street. The President-elect bashed Big Pharma, and failed to provide clarity on the details or timing of policies like infrastructure spending, tax reform and other measures dear to traders' hearts.

The major concerns for the markets regarding a Trump presidency before the election was the uncertainty he brought to the table, lack of experience and impeding rate hikes. Investors were giving him a pass, but why?

The sales traders, traders and portfolio managers I spoke with said it was out of necessity. They needed to have long exposure to the equity markets. The real risk was missing a big move. If there's going to be a huge rally nobody can afford to be on the sidelines. Let's call it FOMO.

But now, is the selling about to begin in earnest? "Buy the rumor, sell the news," Steven, a portfolio manager said. And he's not the only person I spoke with who shared the same sentiment. "And right now the rumors are still swirling."

The rumors are Trump brings a pro-business agenda, infrastructure spending, potential growth and of course the proposed tax cuts. All of which Wall Street loves to hear.

"He seems quite proud of himself for the recent rally," Amy, a sales trader said. "Trump is wearing it like a badge of honor, so I suspect he'll do whatever it takes to keep it going."

But the rally is based on voodoo magic. It's all sentiment and confidence. The markets have surged higher on hope, optimism and the prospects of an America First economy. Mix that in with promised job creation, tax cuts and the rhetoric of deregulation and it seems the markets are poised to continue moving higher.

"He's made it so obvious to American companies," Brian, a sell side analyst said. "If you play by his rules—then you're rewarded. And I promise you every large company in the country is having Trump strategy sessions behind closed doors—how to deal with him. And in the short term it should fuel the market higher."

But the downside is also becoming apparent – especially to companies that don't play by his rules. Wall Street may finally be getting worried that reality will not meet expectations.

How to Trade Trump

It's a bull market until it's not. So there are a few basic rules you need to follow:

Don't be the first one to leave the party, but get out right before the cops are called.

Stay long and buy disaster insurance because when it goes—it's gonna go.

Trump doesn't like to be wrong so if he's digging his heels into the ground on a particular industry or company—trade it that way because he's not going to stop.

So far, traders and portfolio managers have been willing to go along for the ride. A ride in which could result in breakouts to new highs in all of the major indexes. But it's not without fear. There are signs of the rally losing steam, and broad strength has begun to thin which is resulting in some players to be cautiously optimistic and others starting to give in to that fear. Only time will tell if the honeymoon will blossom into a long lasting marriage or a nasty divorce.

Commentary by Turney Duff, a former trader at the hedge fund Galleon Group. Duff chronicled the spectacular rise and fall of his career on Wall Street in the book, "The Buy Side." He is a commentator on CNBC's "Filthy Rich Guide" and a consultant on the Showtime show, "Billions," starring Damian Lewis and Paul Giamatti. Follow him on Twitter @turneyduff.

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