how to play this rate cut?

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

  1. fleance


    I was one of those that made 20%+ on Jan 3rd.. mid six figures.. It could be a long while before I ever eclipse that one-day mark...

    I was very fortunate because I was watching about 30 charts of NASDAQ leaders right when the cut was announced and everything jumped 1-2 points almost immediately.. I was doubly fortunate that within 20 sec I had the news that the FOMC had cut rates 50 bp, and I started buying like a madman because I knew the market was very oversold and sentiment was very negative.. buy high sell higher!

    I have a custom batch order program so I could enter market buy orders on about 40 stocks within the first minute, and I kept adding to the positions each minute or two.

    The initial ramp lasted 20 minutes. I was watching my realtime profit climbed 50k, 100k, etc.. and then it started to slow down and top off, and I dumped everything..
    I made some more playing the smaller second bounce, but most of the money was made in the first 20 minutes..

    In retrospect, I could have made much more by buying more of the 2nd tier / heavily shorted names because some of those moved 40%+... I had bought about half 1st tier like CSCO MSFT DELL ORCL CHKP VRTS etc. and half 2nd tier like EXTR EMLX etc.

    Tomorrow's announcement will be very tricky to play because everyone is prepared for it. I plan on just trading tight and trying to fade the inital reactions... Generally, I will stick with the highly liquid NASDAQ stocks (by trade rate, not by volume).

    Latest 'expectation' seems to be 100% chance 25bp, about 40-50% chance of 50 bp. Traders will focus on FED commentary for hints that this might be the last rate cut.. and whether they believe the risks are biased towards more weakness or the risks of inflation have increased now... They might say that they see early signs (the leading indicators) that the rate cuts are starting to take effect now. 25 bp would signal an end to the cuts, which you would think would cause a market tank, but if Greenie says that the rates cuts are starting to work, then it might be a positive.. Personally, I hope Greenie doesn't go for 50 bp with same comments as last time that risks are still biased to further weakness, i.e. they might cut even further! Because that will just perpetuate the 'greenspan put', i.e. Greenspan is gonna lower rates until all those telecom companies start buying equipment again from NT LU and CSCO! If the market tanks on 50 bp cut, then people will start doubting the power of the FED.

    Of particular interest to me is the action of the SOX which has been very resilient in the face of really bad warnings by semis like AMCC yesterday and XLNX VTSS tonight.. Best play lately has been buying AMAT KLAC NVLS PMCS BRCM etc. everytime the SOX drops on some semi warning.. I'll be watching the semis closely the rest of the week to see how they trade post-rate-cut to see if they keep walking on water.

    #11     Jun 26, 2001
  2. tradewiz


    just as Zboy has said, a QQQ straddle may be the safest way to play, especially when volatility on QQQ is at its low end. I built up some straddles using 43 and 44 strikes yesterday now the question is how to get out. any suggestions? thanks.
    #12     Jun 27, 2001