Fed Watch and Volatility
The Fed is coming, the Fed is coming… It never stops amazing me how focused the media can get on events. The FOMC meeting starts today and concludes tomorrow with an announcement from the Federal Reserve concerning short term interest rates and a state of the economy blurb. The lion share of interested parties believe nothing will change. The Fed will continue to provide plenty of liquidity by keeping rates effectively at zero. Then why all the fanfare? The market has been in a selling mode the last couple of weeks and we need a rationale reason as to why. Fear the Fed is going to hike rates? No, not a good reason at this point. But, if you talk about it enough you get the attention of some and it starts to sell headlines.
You have to give our friends in Australia an assist on this one. The RBA hiked rates 25 basis point to 3.5% and are headed to 5% based on comments and the media. This of course raises questions with the U.S. and what the Fed will do relative to short term rates. Now the headlines are full of what ifs! This breeds fear into the markets and the future move lower in expectation of something happening. Let’s face it, investors are already skittish and it doesn’t take much to get them questioning what’s on the horizon. Just another day at the office.
What does any of this mean to you and I? After all, we are more concerned about our money than what the RBA is doing, or the Fed for that matter. We should be doing the same thing we were doing yesterday, setting stops and being patient for the opportunities to develop. They are in the process of panning out, if we are patient. The move to 1120 is now in play based on the futures. If it is an intraday event look for where you can benefit. There will be opportunities. Who will lead the downside move? Financials? Energy? Technology? Watch, plan and execute.
Commodities are moving lower this morning in anticipation of a lower open in the broad markets. Crude is near the $77 mark again. The 20 day moving average is in play at $76.82 and support is now at $74.92. Technically speaking there is a flag pattern in play on the move to $82.43. Generally this is bullish and statistically points to more upside? Worth watching, maybe tomorrows Fed ‘do nothing’ comments will be the catalyst back to the upside?
Biotech has moved down 15% over the last six weeks and is attempting to bounce off support. This could be another short term opportunity in an oversold sector near term. The index made a early run yesterday on news, but failed to hold as the balance of the market sold off.
Interest rates moved lower again after a short run to 3.55% on the 10 year bond. Support is 3.4% with the Fed meeting not much is likely to happen. If the Fed leaves rates unchanged and the economic data is sound look for rates to test support on the low side. My view, that will be short lived and they move back towards the 3.6% range again. The opportunity could be on the short side of the Treasury bond.
Volatility intraday is in play. The fear factor is building momentum and investors are generally nervous. The uncertainty factor is causing most of this as the economy has not grown at the rate of anticipation by the markets. This creates an impasse short term. It will work out in time, but giving it time is something most investors can’t stomach.The key is to remain patient and alert. The opportunities are building and those aware are the ones who will benefit.
Have a great day investing.
