Weekly Raid #47 - Lets get F(e)'d up
09/20/23 - FOMC Day
It’s that day we have all been waiting for: FOMC day
I expect the opening hour to have its usual movement, but then volume and volatility to die out until the presser.
TLDR: It’s Fed Day, be safe. The watchlist is all the way at the bottom
News of the day
It goes without saying that the FOMC/FED FUNDS decision is the main news of the day. Watching how Powell reacts both in terms of decision as well as the word salad that he will give us in the press conference.
If he raises, which I still think personally is possible, then I think we are in for some real volatility to the downside. I cannot imagine that the market will take that decision well. But with oil prices on the run, I can’t see a world where it makes sense to do anything other than that.
If he pauses I would expect more of the same from the indexes. It’s not a real decision either way.
If he cuts, which I can’t see happening (probably the best reason for it to), then I can see us really getting a rally on. I can’t see it lasting, but for a little while, I bet the market goes euphoric.
Higher Level - the recession special
Sticking with the Rate theme on the day, and really the week, let’s look at how rates and recessions typically interplay.
In recent years, higher interest rates have been considered a real problem. It is believed that the rates cause a recession and that’s not really true. When my parents bought their first house a long time ago, they had a 15% interest rate on the mortgage and that was during a time of economic prosperity.
Inflation got top-heavy, and an oil embargo caused a gas crunch, and that is when the recession started. It wasn’t until they cut rates that the real recession started, and that has been the same story for a while now.
As inflation gets hot, rates increase to slow it. This causes economic strain but often locks up the credit market. This lock makes buying and selling houses and cars tough. Who would want to run from a lower rate to a higher rate loan? Then they “get it under control” or see the credit market starting to crack and that is when the recession starts.
Typically once the Fed pivots from raising to cutting, that is when a recession sets it. So how does that relate to current times? Well if you look around the credit markets are tough. Housing is completely blown out, we need both lower rates and lower prices. Auto loan defaults are starting to jump and the used car market is seeing prices drop month over month. Savings are down, credit usage is up, and that is all with higher rates; some things going to have to give.
The “funny” part of this is that our inflationary cycles often start with something other than credit. Rates are always the tool of choice, but cheap energy or increasing supply would have the same if not a better effect. Oil is currently singing just shy of $100 a barrel. If we could get that back into the $40 range we would see a lot of the inflationary forces disappear. But the Fed will continue to Fed this up, so in the meantime buy anything that appreciates in inflationary cycles…. i.e. assets.
Yesterday I jumped into a few names that came across the radar mid-day. First was PG, I snagged some monthly calls that I will look to scale out of around 50%. Second, was an NFLX credit spread for a bounce off a low-volume node. I will be looking to close that before the Fed announcement today.
As for a watchlist for the day, I will post all of the names below and link the charts to the tickers, so just click on the ticker to see the chart. Today could be “a real banger” as the younger generation says so it’s going to be a pretty large watchlist.
I would like to be clear, I don’t plan on trading all of these today, but Fed Days are usually good trading days for me so I want to keep as many options on the table as possible. These days are extremely dangerous to new traders, so sit out. There is no shame in sitting still in volatility. For every post you see of someone hitting a 10x, there are 30 people that blew up.
As always trade well and Good Luck
As always this is all for educational purposes only. You are solely responsible for your trades as I am for mine. Nothing in here should be construed as financial advice, but only educational content about the markets and my particular trading style7