Tuesday Update: The Fed, The Fed, The Fed

The Market

Nothing has changed since Monday's last hour update. As the charts below suggest, the bounce that started late Monday and continued today is looking like a normal retracement before a new leg down. The Fed discussion below implies that whatever is happening today and prior to the Wednesday Fed announcement is just noise before the market shows its real hand. 



The Fed

Here we go again, it's Fed week. The Federal Reserve is meeting today and tomorrow and they are widely expected to raise interest rates 1/4%. But interest rates have already risen (see TLT below) and the Fed is merely playing catch-up. Thus whatever effect higher rates will or are having on equity prices should already baked into the market. 

More often than not, the Fed's pronouncements on interest rates are non-events, but such has not always been the case. In prior years, whether the late 1980's, later 1990's and mid 2000's., the Fed's actions were used as an excuse to take the market way, way up, or way, way down. The trading background is in place for this to be one of those times. In a soup made of record bullish sentiment, scary one-day spikes lower, almost as fast and steep bounces off of the spike lows, and geopolitical uncertainty, the table is set for the Fed to move the market this week. Wednesday afternoon at 2:00 pm (EST) will be the bell ringer.   

Bonds (TLT-20 Yr Treasury)

The decline in the 20-yr Treasury ETF (above) since last last year reflects higher rates. After a brief respite over the past month, it looks like rates have resumed going higher (10 Yr T-Note below).

10-Yr T-Note Yield

Whatever direction stock prices go for the rest of the week, it is all but certain to be laid at the feet of the Fed. After all, they are, "The Fed". 



The big picture perspective courtesy of the NYSE Index.




Every row entry on each of the two tables is a trade idea. We have our own "official" trade management system where if a stop is hit we close 1/2 of the position and hold the remainder for the duration of the trade. If you have a better way to manage your trades, one that works for your own trading temperament, use it. There is no holy grail, though Dylan's, Tangled Up In Blue, comes close. 

The tables are now showing stops hit in red, while keeping the original trade, with 1/2 still outstanding in blue. Let's try it this way for a while, see if it is easier to track the trades while still incorporating the stops.