Hey There Income Hunter,
Today is critical for the markets.
The Fed, led by Jerome Powell, is poised to moderate rate increases once again. His job will be to put further hikes on the table — while arguing against bets the central bank will cut rates later this year.
The markets are priced for near certainty (99%) of a .25 basis point hike at the conclusion of its two-day meeting today at 2 p.m. This will bring its benchmark to a target range of 4.5% to 4.75%.
The move would be another downward step for officials, who increased rates by 50 basis points in December, following four 75 basis-point hikes last year.
The key right now is what is the market positioned for – and, more importantly, what is option positioning saying about a trend post-Fed?
Here’s what I see.
Does the Risk-On Rally Have Legs?
This is the big question to answer in February …
The market has been on a stealth mission of grinding higher to start the new year. This was partly due to a late-to-the-party Santa Claus rally and fear of missing out (FOMO) on a pivot away from Fed tightening.
As you can see in the chart below, we have reached an important resistance area in the S&P 500 at 4100.
On the face of it, the index has broken out of the downtrend for all of 2022 (black line). It also has broken above the 50-week moving average. However, major resistance sits above the market at 4100.
The 4100 level is the strike that holds the largest amount of net positive gamma of all SPX strikes. Call buying has been huge at that level and, as the market tests it, market makers sell calls to option dealers who then sell stock to delta-hedge their risk. This provides a ceiling for prices in the near-term.
Volatility Low and Trading at a Discount
Volatility in the tech sector as measured by CBOE NASDAQ 100 volatility (Ticker: VXN) is trading at the low end of its range.
Notice how it bounced off support over the past few days as the Invesco QQQ ETF (Ticker: QQQ) continued its trend higher.
These divergences between price, volatility and volume are very important signals for forecasting future trends.
The buying volume has been above average for QQQs over the past few days but volatility has not confirmed to move higher.
Powell Will be the Deciding Factor
The market once again is in Powell’s incapable hands.
He has made many mistakes in the past and will make a few more as he attempts the impossible …
Powell is trying to hold inflation down while engineering a soft landing for the economy. This is the classic example of having your cake and eating it too.
What’s the Trade?
My internal signals of the market reveal the probability for a melt-up rally starting in March …
I am looking at today’s Fed meeting to induce a pullback that will provide an opportunity to build positions in tech, precious metals and energy .
And more exciting news …
Act before 2 p.m. ET to join Power Income Trader – and receive a full year of access to my fast-action Win The Week program at no additional charge.
Call our Customer Care Team at 1-888-872-3301 starting at 9 a.m. ET to claim this offer.
Together, these two services will place you in prime position to maximize profits in 2023.
Live and Trade With Passion My Friend,
Griff