Don’t Fight The Fed

Don’t Fight The Fed

MARKET OVERVIEW

The Fed, uncertainty, and another red week

This year has been a red year for the major indices. The Nasdaq is in a bear market, and the S&P is not far behind. This week featured two days of relative chop with the SPY ETF never touching $419 until after the FOMC meeting on Wednesday. The market liked the already baked-in 50 basis point rate hike and the call with Chairman Powell. Post 2:30pm, the aforementioned $419 level was blown past as SPY shot up to test $430 by the end of the regular trading session. Earnings season also continued with Starbucks Coffee rising on positive earnings and an oversold environment. Other earnings also occurred this week with some beating and some missing. Of note, however, is that Thursday showed that the rally was not to be trusted. the SPY ETF fell back down to a new two-day low to $409.60 and some change. This featured range and day trading opportunities throughout the session with savvy intraday options traders making money both ways. Ultimately Thursday left many with a sense of uncertainty. Was it a rebalancing retrace of the post FOMC rip, or was there more room for blood below? Friday opened down, tried to rally, and ended up closing at $411.30 in a spinning top daily doji, down for the week. In fact, the weekly candle looks crazy. The stock market, suffice it to say, has seen better days.

 

INSIDE THE BOX

With FOMC and the much-anticipated rate hike being the focus of the early week, our various trading rooms kept doing what they do best…learning from each other in a collaborative stock market trading environment. The abovementioned Thursday was an interesting day in the trading rooms. Many of our traders synthetically shorted tickers like SPY, FB, TSLA, and others via put option trades once the downtrend was confirmed. The trading rooms are especially helpful to discuss various things such as entries, exits, support and resistance, strategies, indicators and more with fellow active option and common share traders. It is important for a retail trader to have a social component to his or her daily routine. Being an active trader by one’s self is not an ideal situation. When you trade by yourself, it can be a solitary and frustrating experience. The social aspect of what we offer a BlackBoxStocks has been reported to be many members’ favorite aspect of our community.

 

TAKEAWAY

This week helped reiterate the lesson that FOMC meetings can be directional momentum events, and it hardly ever pays to bet before the action begins. If one could have waited for the $419 resistance to give way with volume, the entry would have been about 2:45pm with the breakthrough at that level with high relative volume. Even if one is conservative and waited for confirmation or continuation of that break, entering a long Odte position would have produced a very nice profit. The day prior to that moment was, mostly, theta-laden chop. Patience pays in the stock market, regardless of your chosen trading timeframe.

Finally, the Internet is right with all sorts of predictions about next week. Remember that no one has a crystal ball, and if they claim to have one… avoid them at all costs. We will wait and see what shows up in the charts next week, and I hope you have a great weekend.