Better Know the Fed

Hi Shoppers,

After reading Bill Griffo’s fascinating piece on Federal Reserve chairman Jerome Powell’s potential ouster, I took a look at a few of the banking stock charts and found a couple of great trading ideas.

But before we get to those, let’s talk about the Federal Reserve …

Most people don’t know much about the Fed.

It is kind of mysterious, and it isn’t really a federal government entity.

In fact, it’s completely separate from the US government, even though the President appoints the board of governors and nominations are confirmed by the Senate. Board members then serve 14-year terms, which are staggered to help keep the Fed apolitical.

The Federal Reserve System also includes twelve regional banks located in Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, San Francisco and St Louis. (And, to be honest, that sounds like a great BBQ tour.)

In 1913, President Woodrow Wilson signed the Federal Reserve Act to help stop financial panics during which people would run to their banks to withdraw all their money …


Historically accurate!

And the Federal Reserve was originally created to provide stability in the financial system.

Today the Fed has four main functions, as noted by the Fed itself:

      • Manage inflation
      • Supervise the banking system
      • Maintain the stability of the financial system
      • Provide banking services to other banks, the US government and foreign banks

Taken together, the Fed is probably the single most influential market mover — and that means the chairman is one one the most important people in global finance. 

Will “J-Pow” continue to fill the role? We shall see.

Banking Trade Ideas

Here is what I saw late last week in Bank of America (Ticker: BAC):

BAC ran up from $37.55 on Aug. 3 to $42.28 last Thursday.

I thought the hanging man candle from Thursday indicated a change in this uptrend and Friday’s candle showing the stock trading lower provided confirmation

I think BAC can trade back down to $39 by this Friday, so I am looking at puts expiring Aug. 20.

Why?


Because they will have the least amount of time premium in the price, therefore they will be cheaper.

I like paying up to $.45 for the Aug. 20 41.50-strike puts. It’s a super-cheap shot.

I see something similar in the Wells Fargo (Ticker: WFC) stock chart:

WFC has run up from $42.20 on July 19 to a high on Friday of $51.41.

Friday’s candle completely engulfs Thursday’s candle, which could signal an end to this uptrend.

I think WFC could trade back down to $47 by Friday, so I’m looking at Aug. 20 puts:

I will pay up to $.48 for the Aug. 20 50-strike puts.

Another super-duper quick, cheap shot that I like a lot.

Thanks for Reading … See You Next Tuesday!

Licia Leslie

 

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