FOMC Preview - December 14th, 2022
CPI Recap -
What a wild day. CPI came in cooler than expected and that is saying something cause the expectations were already cool and the market ripped up on the data. We actually hit 414 in premarket and then opened near 410. That 410 level proved to be too big to handle yet again, and the market began to selloff. We actually hit sub 400 and everyone was looking around like what the hell just happened? We got a cooler CPI and the market treated it completely different than the cool reading from last month. That is a pretty clear signal that the inflation trade is coming to an end and the recession fears are starting to enter the market. Keep an eye on bad news finally turning into bad news again in the market.
FOMC Preview -
FOMC is where the fun really begins. JPow is the one man that can shift any trend and create major moves in the markets. One very very important note about this FOMC meeting is that we get the economic projections for the Fed Funds rate. This was not in the last meeting so this was last updated in September. The fed funds rate was projected to be 4.4 in 2022 and 4.6 for 2023. JPow let us know that the Economic Projections would be higher if they were released in the last meeting, so we can safely assume that near 5.25% is on the table for 2023.
The next section is purely my opinion and prediction for FOMC and how it will play out So please take everything I say with a grain of salt.
I anticipate that the market will initially move down on the release of the data at 2pm. Then I think JPow will talk the markets up using bullish buzzwords, and be the same kind and gentle JPow that we last saw a few weeks ago. The market will then blast higher while he is speaking, as they believe JPow is satisfied with his efforts and the pain is over from the Fed.
HOWEVER... the market will start to move down as it digests the data from the economic projections and realize that the Fed is actually going to keep raising rates and have no intentions to pause until more data allows them to. This will lead to a massive selloff and I believe will officially be the end of the inflation trade and the start of the recessionary trade. This will trap and hurt a lot of folks, so be nimble.
How I am playing FOMC. I will be doing a small strangle before the 2pm release and will close out the put side at the data release. I will then hold the call side as I anticipate the kind and gentle JPow. I will then close the call side out once the market shows a reversal back down. Until then, I will ride it up and start grabbing core puts for Feb or March at key levels. But I need to see a reversal first and those economic projections must have 5.25% on them.
There is nothing JPow can say tomorrow that will give me confidence to enter any calls for the long term. There is a shift happening in the markets and I need to start adjusting my strategies from the inflation trade to the recessionary one. I think the "big drop" that everyone is waiting on, won't happen until the unemployment number starts spiking.
This is not financial advice.
The next section is purely my opinion and prediction for FOMC and how it will play out So please take everything I say with a grain of salt.
I anticipate that the market will initially move down on the release of the data at 2pm. Then I think JPow will talk the markets up using bullish buzzwords, and be the same kind and gentle JPow that we last saw a few weeks ago. The market will then blast higher while he is speaking, as they believe JPow is satisfied with his efforts and the pain is over from the Fed.
HOWEVER... the market will start to move down as it digests the data from the economic projections and realize that the Fed is actually going to keep raising rates and have no intentions to pause until more data allows them to. This will lead to a massive selloff and I believe will officially be the end of the inflation trade and the start of the recessionary trade. This will trap and hurt a lot of folks, so be nimble.
How I am playing FOMC. I will be doing a small strangle before the 2pm release and will close out the put side at the data release. I will then hold the call side as I anticipate the kind and gentle JPow. I will then close the call side out once the market shows a reversal back down. Until then, I will ride it up and start grabbing core puts for Feb or March at key levels. But I need to see a reversal first and those economic projections must have 5.25% on them.
There is nothing JPow can say tomorrow that will give me confidence to enter any calls for the long term. There is a shift happening in the markets and I need to start adjusting my strategies from the inflation trade to the recessionary one. I think the "big drop" that everyone is waiting on, won't happen until the unemployment number starts spiking.
This is not financial advice.
SPDR S&P 500 - SPY
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