The Fed’s on Tap. Big Ranges Expected

A potential setup in AMZN. 

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Our View

A few weeks ago, the market was “certain” that the Fed would raise rates by 50 basis points at the current meeting. That’s after Chairman Powell’s decisively hawkish testimony, where he laid the groundwork for a larger-than-expected rate hike and and higher rates for longer than expected.

Then the regional banking crisis happened.

Now the market expects a softer approach from the Fed, which includes a rate hike of just 25 basis points. That’s probably the smart move.

“No hike” could give the markets a sugar-high rally, but ultimately says to the market that the banking crisis is more severe than we think. A 50 bps hike creates worries about more stress on bank balance sheets.

25 basis points allows the Fed to save face without causing too much worry. It’s the press conference at 2:30 we have to look out for…

Our Lean

I don’t know that yesterday could have gone much better. Selling the opening rally into the 4020 to 4030 resistance area “(and preferably 4025-4030)” gave traders a couple of quick scalps of 10 to 20 points.

However, the second part of the Lean was to buy the pullbacks, particularly if the ES was “very constructive for the bull case” by staying over last week’s high of 4009. Just look at the chart below and try not to look at it “in the past” but instead, save it, download it — whatever — and try to apply some of the logic and levels to your trading going forward.

This is how we often look at price action throughout the day (Globex high/low, last week’s high/low, etc). Of course, it helps to have a plan going into it the day:

On to today.

Paraphrasing my friend Jeff Hirsch of the Stock Trader’s Almanac, he said that “the S&P 500 has been up 5 of the last 8 Fed rate hike announcement days, with an average gain of 0.69%. It’s been down 5 of the last 8 on day after, average S&P 500 loss of –0.91%.”

Our Lean:

This is the section where Danny lays out his Lean on the market and his approach to today’s trading session.

Danny Riley is a 39-year veteran of the CME trading floor. He has run one of the largest S&P desks on the floor of the CME Group since 1985.

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MiM and Daily Recap

If you want the recap, just look at the graphic above. The ES faded from the 4030 area shortly after the open, held last week’s high near 4009 and bounced. It struggled to regain the Globex high of ~4021, but in the afternoon it put in a higher low near 4010, charged through 4030 resistance and traded up to 4040.75 at 3:50.

The cash imbalance showed $863 million to sell, grew to more than $2.4 billion for sale and the ES traded 4038.50 at 4:00. At 5:00, it settled at 4039, up 52.75 points or 1.32% on the day.

In the end, it was a “choppy grind higher” — just like the day before. In terms of the ES’s overall tone, it was bullish but sluggish. In terms of the ES’s overall trade, volume was very light at 1.44 million contracts, 31% below its 20-day average and its lowest volume since Feb. 13.

Technical Edge —

  • NYSE Breadth: 85% Upside Volume

  • Advance/Decline: 78% Advance

  • VIX: ~$21.50

S&P 500 — ES

  • Downside levels: 4020, 4009 (last week’s high), 3975-80 & 3948-58.

  • Upside Levels: 4045-50, 4067.50, 4082, 4100, 4130.


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Open Positions

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  • Italics show means the trade is closed.

  • Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be B/E or better stops.)

  • ** = previous trade setup we are stalking.

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Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.
Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!