Hey There Income Hunter,
Nick Timiraos of the Wall Street Journal is widely recognized as a Fed whisperer, and he may have telegraphed a shift in Fed policy in a report published yesterday.
In the article, Timiraos wrote that Fed officials are targeting a .75% rate hike at the FOMC meeting on Nov. 2. He then reported they are likely to debate whether, and how, to signal plans to approve a smaller increase in December. `
As you can see in the table below, this has caused a big shift in pricing for the December rate hike. Currently the range is 3.00-3.25, and after Nov. 2 it will jump to 3.75-4.00.
So, a decline to .50 from .75 for December would get it to 4.25-4.5. However, depending on the economic data in the weeks ahead it could ultimately pause after Nov. 2 …
Today, we’ll look at recent data and the chances the Fed may pause its rate hikes after Nov 2.
Leading Economic Indicators Turns Negative
The chart below shows the LEI now falling by 1.4% year-over-year. It is getting harder to dismiss recession based on this information.
Philly Fed Index New Orders Worst Since 1979
The Philadelphia Fed Index has always been a reliable forward looking indicator for the US economy …
As you can see below the six-month forecast for new orders is at the worst level since 1979.
Based on the leading indicators of the economy, I expect we will continue to see weaker numbers in Q4.
So the question is how do you make money?
Friday marked a change in the Fed narrative back to a possible pause. This is bullish for stocks in the short-term …
Friday’s trade in SPY broke above the gamma pivot level at 370, which means option dealer hedging will turn positive for the market if SPY holds above that level.
How the market trades on Monday is important …
If we see follow through buying, then the rally could extend to the SPY 390 area into the end of the month …
New Power Income Trades
As soon as I saw the WSJ headline, I closed bearish spreads I had on in the Bank ETFs (KRE and XLF) for gains of 28% and 35% and took a 20% loss on the HYG short …
Then I purchased bullish call spreads on the Van Eck Gold Miners ETF and the United States Natural Gas Fund (UNG). They both closed in the money and if we can confirm a change from a bearish to bullish trend I will add to both.
Bring It Home
It is critical to jump on possible shifts in the market narrative, which was my goal yesterday.
Once you are in the trades, stay alert to why you may be wrong and have a game plan for exiting so you limit your losses no matter what. Otherwise look to ride for profits.
These new positions definitely have the potential for being long-term winners but I will need confirmation of breakout levels in the weeks ahead.
Stay tuned, have a great weekend and as always …
Live and Trade With passion My Friend,
Griff