I Just Don’t See The Need For A Cut
On Wednesday, Federal Reserve Chairman Jerome Powell announced that The Fed had decided to cut interest rates by 25 basis points. The market was expecting 50 basis points and immediately sold off. In fact, the S&P- 500 had its first breakout move above or below 1% in thirty-eight trading sessions. After the shock, the market recovered somewhat as the S & P closed down almost 1.3% On Thursday after opening lower, equities rallied substantially when traders looked for further considerations but eventually, they threw in the towel and closed lower. The Vix had its biggest rally in three months and it looks like we could be in for some price movement over the next few weeks. But my question still remains why did the FED cut rates?
The Fed maintains that it was for a preemptive strike to cushion the economy from a global slowdown and continuing trade tensions. Chairman Powell didn’t rule out further cuts but emphasized that this should not be the first of a series of cuts. That would only happen if he saw some economic weakness. Instead he said that the cut was only a mid-cycle adjustment. President Trump immediately blasted the move as being “weak” and needed to be extended. The market had apparently anticipated a 50-point cut, and when that didn’t happen, it sold off. A lot of that was knee jerk and it will take several sessions to see if we are headed down from here.
But what about the people that believe as I do that there was no need for a cut. Two of the board of governors, Eric Rosengren and Esther George felt there was no need to cut rates during an economic boom. Low unemployment and a marginal inflation rate were sighted on their side of the story. In addition, QE is far from wrapped up. Of the $4.8 Trillion that was invested in bonds only $8.3 billion have been retired, far from the amount that was to be retired by now. What happens if another recession hits (and it will). Are we going t go to negative interest rates to stimulate the economy? This strategy has proven less than successful in the ECU and Japan. My take is that this has been a bad cut, and I think time will show that I am right!
Ask Mr. Seifert
I am constantly asked questions about trading and how to exploit certain market factors to insure success. Each week I will answer one of those questions with a short paragraph which will cover the trading subject.
Question: Why not sell the Weekly Straddle for a larger credit than a vertical spread?
Answer: Selling a straddle for a credit is not the same as selling a credit spread. When you sell a straddle, you are selling two options at the same strike price, a put and a call. And while it does create a much larger credit it also creates unlimited risk. Selling a credit spread doesn’t have as much profit potential as selling a straddle, but it has limited risk. Remember, when you sell an option you create unlimited risk. To negate that risk, you must buy an option against your sale. I have seen some of the most brilliant people on earth blow billions of dollars by taking unlimited risk. Don’t be one of them. Stick with the spreads that have limited or unlimited reward but always have limited risk!
The Wise Guy Report: The View From The Floor
Each week I talk about what I think the Wise Guys (floor traders) are up to with the Big Three commodity contracts: Gold (GC), Crude Oil (CL) and Long-Term Interest Rates (ZB). I also track the Market Edge (www.marketedge.com) ‘Market Posture’ which has a twenty-six year record of forecasting the intermediate-term direction of the stock market as measure by the DJIA with around 70% accuracy.
T-Notes
T-Notes finally popped with the announcement of the first interest cut in ten years, but how much further do they have to go? This market looks like a knee jerk reaction that is about to end in a blow off top. If that happens, then we will look for a spot to get short this market. The last thing you want to do is get long at these levels.
Crude Oil
Crude was at near time highs before the Fed’s announcement triggered a U-turn and plunged almost 10% on Thursday. It did recover about 40% of that amount on Friday and closed virtually unchanged. Even with the problems with Iran and Britain, no one seems to care. It looks like it will take some catastrophic event to get this market to move in one direction on another. Near term support held and unless it is violated I will continue to trade this market from the long side.
Gold
Continues in a volatile congestion phase at the top of the current market. When the Fed cut rates, gold showed a sharp rally to new market highs. I am not convinced that this is the blow off and want to see some sort of retracement back to support before I commit to a long position.
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The Big Three Commodities Contracts
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| The Market Edge – ‘Market Posture’
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The Market Edge ‘Market Posture’, which has been Bullish since the week ending 04/18/2019 (DJIA 26559.54) is now regarded as Bearish.
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