Trading the June 29th FOMC meeting

Discussion in 'Trading' started by steveosborne, Jun 28, 2006.

  1. This time, I plan on trading only after observing market reactions to the announced rate. The Fed might be in a situation where if it doesn't get more aggressive and doesn't increase its rate by 50 bps, the oil market will force it to do so soon after.

    FOMC meetings had been non-events for several months until now. They were non-events to me because <b>1.</b> The targeted Fed Fund would increase by a widely expected quarter point each time; AND <b>2.</b> Markets would maintain their trend -- stocks up; bonds down; oil slightly up -- and provide a clear picture of a robust economy with inflation under control.

    But now those two elements are gone. Interpreting what markets are saying about the economy has been extremely difficult since the last CPI report and the possibility of a 50 bps rate hike has increased because of inflation risks. While gold, the euro and the stock market were dropping, oil refused to follow and is now showing signs of returning to its previous record highs. I expect to see one of the following scenarios:

    <b>Case A.</b> We get a quarter point rate increase; stocks and bonds are relieved and go up but oil is also going up, at a rapid pace. In this case, I would short bonds. Between bonds and stocks, I prefer to short bonds because of the trend.

    <b>Case B.</b> We get a half point increase and stocks are going down. At that point, oil would probably drop and signal an opportunity to get long stocks.

    Now, for those who don't know me, why imagining those scenarios instead of just waiting to see what the markets have to tell us? To put it simply, if markets react differently in terms of direction or magnitude to what I was expecting, they will indicate that I'm out of touch and should do nothing and that's very good information to have.
  2. I think bonds might be priced in, for your A scenario. They have sold off quite a bit recently, I think you might seem some short covering.

    The key is the amount of the cut and the wording. Lately the wording has been ambiguous at best, and in that case, trading the VOL is probably the best overall strategy. The challenge is that we've had 10 point moves up and down, and a 20 point moves is no longer out of the question, so that means you must size your position accordingly.

    Good luck, let's see what tomorrow brings.
  3. Q12


    the only way I see 50 bps happening is if this is the end of the rate hikes... (the last 3 have ended with a 50 basis point move if i'm not mistaken)... if 50 happens, as soon as it hit the wires, I think the market takes off to the upside... my guess is they raise by the expected 25 and keep (for the most part) their same outlook...
  4. The Fed has turned down one of those streets that has "no outlet" as a part of the street sign - I guess they missed that part when they turned. :D
  5. I forgot to mention that when talking about risks of inflation that might concern the Fed, I also take into consideration gasoline and heating oil.
    <img src="attachment.php?s=&amp;postid=1116718" /a>
  6. Gasoline and heating oil are making record highs almost on a daily basis.
    <img src="attachment.php?s=&amp;postid=1116724"/>
  7. Going LONG B-4 the Fed announcement as what they will announce will not be expected and the market will take off like the space shuttle.


    (keep it simple stupid. it always works...)

    0.25 hike is priced in

    scenario / FED action+comment / market reaction

    #1 +0.25 +no comment = ? (likely up)

    #2 +0.25+concern = ? (likely down)

    #3 +0.25+stop hiking = up

    #4 +0.5+stop hiking = up

    #5 +0.5+ concern = down

    #6 no hike = up

    This is what is expected. The most important thing is to have 2 trading plans:
    plan#1: your behavior when one of these scenarios perfectly works.
    plan#2: your behavior when one of these scenarios perfectly works in the begining but then it doesn't.

    you dont trade anything that lies inbetween or anything that you never expected (i.e. if the market doesnt give you what you expect and what you are ready for you dont fuck with it).

    simple, no need for stupid and lengthy discussions..

    good day to everyone
  9. Dont over analyze the fed. The marekts will surge after the fed move cause stocks are so cheap and are makign lots of revenue. Expect nasdaq to surge to 2400 after the fed shake out in the past two months.
  10. __________________________________________________________________________

    "i was long everything from mrvl to brcm and was margined huge."


    Your not still holding some longs are you? :D
    #10     Jun 29, 2006