Yo Pit Crazies,
For years, Fed announcements were no big thing as the actual economy trumped any small-time shenanigans that the central bank could cook up.
That all changed in 2008. The extraordinary actions the Fed took enabled poor economic policy for the next 10 years. Actually, make that 15 years when you toss in COVID-19 and what has been going on lately.
We’re left with the condition of monthly binary switches in which the market can move 10 SPDR S&P 500 Trust (Ticker: SPY) points or more.
The returning story on Monday was energy. Energy stocks bounced back as some of the bid left the AI-heavy Invesco QQQ Trust (Ticker: QQQ). Still, energy stocks are near their lows for 2023.
XLE one-year chart with implied volatility on the bottom chart. Note the recent high.
That will set up an interesting trade for this week, Fed come what may.
The Fed Is Still the Story, So Get Market Neutral
My idea is a Mark idea and I like it.
The potential for larger swings on Fed news this week is set up in the options prices. The one-day straddle for SPY on Mar22 is $8. That is a good size move predicted.
The idea is to get long the SPDR Select Energy ETF (Ticker: XLE) and short the QQQ. I will use calls for XLE and put spreads for QQQ.
The biggest reason is that QQQ has rallied 4% in the last week on the banking woes. That flight to quality will end as the market looks for cheaper stocks. Those are the energy stocks.
Mark and I will set up the trade in Nitro Trader this week.
As for Wednesday, look for big moves out of SPY.
To Your Trading Success,
AG