Yo Pit Crazies,

Trading involves timing and awareness of the product you’re trading. 

You can be a day trader, swing trader or investor … but the time and options still matter. 

That is part of the OP mantra: develop the position around the conditions.

And the conditions right now? We’re in a Fed cycle that has a grip on the market.

The SPDR Select Financials ETF (Ticker: XLF) is trading near year lows for 2023. Meanwhile, most of the market is not. 

In fact, XLF gave back all of the gains from Fed governor Bostic’s rate pause rant. The rest of the market did not.

XLF 6 month chart with 1 day candles

Is XLF telling us something about the future pace of rate cuts?

Banks Should Do Well In A Higher Rate Environment

One thing is clear: realized volatility for XLF is much lower. 

Banks rallied with the market in early-Feb on what were lower rate hikes from the Fed. Now, the current spate of market unease has implied vol jumping from recent lows. 

Banks should do better with higher rates … so why are they at the bottom again?

One word: recession.

Aggressive rate hikes could very well lead to a crippling recession.

I think banks are giving us a clue that for the next two weeks, through NFP, CPI, and the FOMC rate decision, stocks are back to the binary switch on news. 

I expect 100 point SPX moves again because the market doesn’t like it when banks are in the tank. I will have a follow up on the regional banks for Friday.  

Every time the market looks like it is settling down it pulls us back in …

To Your Trading Success,

AG