how to play this rate cut?

Discussion in 'Trading' started by janko, Jun 26, 2001.

  1. janko


    ok guys i guess this is a short term thread but i was wondering how would one go about playing this rate cut whether its 25 or 50 bps. i guess i'm leaning towards 50 if it goes thorugh which stocks to play, do you pick up the financials or do you go to nasdaq and buy the classic brcm,jnpr chkp, etc.. which if the mkts run they'll give several points. i guess i am kind of looking at a scenario that if mkts rally i want to be in somoething that will move a few points, and also if mkts stay flat or sell off a bit i am holding a stock that has a decent chart pattern that would sugest a buy. I guess this would be a swing trade that if it turnsout that i can get few points in one day, i'll take it. So i will be lookign for a chart pattern taht one might consider going long even without the 50 cut. any thoughts ideas suggestions which stocks to look at? greatly appreciated any strategies.
  2. Best way to play a rate cut is follow Steve Cohen as he talked about in "Stock Market Wizards"

    put in a limit buy order well below the market and a limit sell offer well above the market. Whatever happens is pure speculation and a huge overaction. I'd look to fade it when it's losing steam.

  3. Best way to play it is to take a nap. I'm leaving by noon with my girlfriend to look for a puppy. I have made money on one fed day in the last 18 months. Fed cuts are just times for ametuers to get cut to bits. There is little liquidity if you are leaning the wrong way, and the spreads are awful. Do yourself a favor and take the day off.
  4. Pretorian2 actually has the best play. DON"T PLAY it.

    Usually very highly speculative.

  5. I also don't often take positions based on Fed days. However, if I had to venture a guess, I would say Greenie will do 50. He knows that 25 will probably cause the market to puke, which is the last thing he can afford now. Auto output from Japan fell 2.4%. Prices paid in Japan fell again making 21 months in a row of falling prices (deflation) European outfit Gemini, is missing estimates huge, and laying off 3000 people. Rumors in Germany is that they are looking at recession and Bayer may warn soon and cut jobs. Morgan Stanley says "A recession in global trade is well under way, underscoring the first full-blown recession in this modern-day era of globalization. What began in America has spread quickly to non-Japan Asia, America's NAFTA partners, and Japan. And now cracks are evident in the once impenetrable Fortress Europe."

    When you see global headlines like the ones above, its pretty clear that there is no one out there to help us get out of this funk. We can't rely on Japan to buy our stuff, Europe is slowing in leaps and bounds, Latin America is on the verge of collapse, the Pacific Rim is falling in the toilet, and except for China, no one is buying anything.

    Greenspan knows that if he gives us 25 we are going to see the market tank, and that will do the one thing he simply cannot afford. It will send consumer confidence down the toilet. He has done everything under the sun to keep the consumer borrowing and spending like a madman. Yelling at bankers to loosen credit standards, pumping up the money supply at unheard of rates, Cutting rates 5 times at 50 BPS at a time, and pushing Congress to pass a tax cut, something he was "against" just two years ago. If the consumer goes into hiding, or simply can't spend any more, we are going to see a recession the likes of we haven't seen in many years. He cannot let that happen.

    Of course he could do 25 and keep another 25 under his belt for a near future intermeeting cut, but in summary, I tend to think the market will move down on either announcement. 25 isn't enough to make everyone happy, and 50 will scare people into thinking things are still way worse than we thought for them to be so aggressive.
  6. Now that I think about it, if you wanted to do a play on the Fed cut (or any other expected market moving news), your safest bet would be to do an options straddle.
  7. Babak


    IMHO you go in already positioned. Not really wise to take a stance after the fact.

    the park your brain at the door trade is a straddle.
  8. mjt


    I remember earlier this year a bunch of traders talking about how they made all kinds of money when Greenspan made a surprise cut of 50 basis points. It seems to me one guy on this thread said he made like a 20% return that day. Was that one only playable because it was unexpected? (I don't think there was even a fed meeting scheduled that day)
  9. Hitman


    I will never forget that early day in January. At the time the market was severely oversold and when it happened, the stocks I was watching (IBM, GS, just to name a few) went up 4-6 point in one or two prints. It was so unexpected, with no Fed. meeting scheduled for the week, and it happened at a time most traders would be at lunch. Market just ran and ran and ran, some of the super size traders at my firm packed high six figures that day. That was the day that made me realize I should know a few tier 2's so when a move like that happen I won't be sitting with no positions.

    Not long ago (was it in April?), there was another surprise rate cut, but this time the market was not nearly as oversold, as a matter of fact it was somewhat overbought, another huge rally but it faded away by lunch time.

    For your reference I finished both days down, somehow, someway, if you weren't long when the news came out, the spreads are completely rediculous . . . you will have a hard time getting into anything. The first surprise cut, I was a newbie then, watching IBM and EMC and wondered how am I going to get in. Second surprise cut, I did ok during the first move, but I was expecting a second leg, which never came . . . and I ended up hacking myself to death.

    Tommorrow won't be one of those crazy days, but Fed. days are incredibly tough. One of the senior trader's advice is to play the third move. Typically the first emotional move you can't get in, if you jump in you will get killed by a quick reversal/squeeze (depend on whatever the first move was), the third move, when the second move runs out of gas, is the right move to play . . .

    I did fine on last two Fed. days, not spectacular because I was really cautious with sizes on this kind of days, but better than being down . . .
  10. The jan one caught me very short actually. I tried to exit, and got stuck snet orders. I was down 10k in seconds. I averaged the positions, and somehow got out flat, but that was one to remember. I think qqq stradles are a good idea, emphasis on the put side probably.
    #10     Jun 26, 2001