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Is the Fed About to Spark A Rally?

Hey There Income Hunter,

 

It’s already been a dramatic week of trading and we haven’t even gotten to the main event yet.

 

Here is the stat of 2022 so far … 

 

The VIX is up 70%  YTD and nearly hit 40 on Monday. This is the highest reading to start the year since … you guessed it, the 2008-2009 Lehman period. 

 

Monday was also critical in the sense that Nasdaq internals showed a capitulation trade and more than 1,000 new lows were recorded. That is pretty incredible considering the broad index did not hit a bear market. 

 

Over the past week I have closed my broad index and sector put spreads and sold my long bond call spread. 

 

I think it is time to get long for a substantial relief rally based on even a hint of dovishness from Jerome Powell later today …

 

Now, believe me, I am not comfortable relying on the Fed, but the probabilities of a rally from here are high enough to make a play.

 

Today, I’ll share additional supporting data on why I think the Fed will ignite a short-term reflation trade into the end of Q1.

 

Check that out inside

 

But first …

 

You don’t want to miss today’s Power Income live presentation because I will give you 2 great names that are no-brainers to rally 10-20% in jus the next couple of weeks.

 

Register for the event here.

 

Fed QE Taper Policy

 

We have to remember the Fed continues to inject money into the banking system until March.

 

The Fed initiated the $120 billion a month in purchases in mid-2020, so in 18 months they added $2.16 trillion into the market, which mostly went into stocks and bonds. 

 

However, they reduced that number by $15 billion a month in November and December, and will further pull back by an additional $15 billion (for a total of $30 billion) in January, February and March.

 

 

March 16 is the next FOMC meeting, so after today the market will trade on technicals until we hear what the Fed will do beginning in March.

 

I believe Powell will give the Fed a bit of wiggle room to maneuver beyond a March +.25 rate hike. 

 

Here Is What Is Currently Priced In

 

Below is a table of FOMC meetings and the percentages for each target range that Fed funds futures are currently pricing in. 

 

The cells highlighted in yellow are the meetings that Fed funds futures sare pricing at least a 50% chance of a .25% rate hike. (Well, the fourth hike is 49%, but I included that for now.)

 

 

The market has been discussing four rate hikes since November. I do not think the Fed will get there.

 

A Likely Scenario Heading into Today’s FOMC:

 

      • Powell will tweak his message and maybe point to Omicron, geopolitical risks and recent slower growth reports.
      • The stock market will get a nice bounce from now until early March. The rally will be led by the beaten down info tech, healthcare and consumer discretionary names. Quality companies down 50%+. 
      • From now to March I will be out of the stocks because from then on liquidity is drained from the system and I am not sure if the market can handle that.

 

Here is a stock I will be long into the meeting.

 

Teladoc Health Inc. (Ticker: TDOC)

 

TDOC recently put in a 52-week low and is down 78% from the high. 

 

Now, this is a company that is considered the pioneer in the virtual medicine space. 

 

They are well positioned in a global telehealth market that was recently predicted to grow to $636 billion by 2028. That is a rate of 32% annually. 

 

It’s incredible to see that TDOC was trading at $308 in early 2021. Plus they ranked No. 1 in consumer satisfaction by the J.D. Power Telehealth Satisfaction Study in two out of the last three years. 

 

In Q3, TDOC reported revenue growth of 81% with $2 billion projected for all of 2021. Analysts forecast growth of 181% from 2021, which would take revenues to $3.62 billion with an EPS of $2.57. 

 

That is enough for me. Let’s take a look at their chart pattern.

 

Notice in the chart below how large the volume was from the low on Monday: 

 

 

The volume for the 30-minute bar at the low on Monday was 4x the average 30-minute volume and highest since a similar-high volume move from the $95 level in mid December. 

 

Bring It Home

 

These are trades you must make, and you can only know about them if you understand the Fed and how the central bank works. 

 

We can find periods of massive flows that are driven by shifts in investor psychology triggered by the Fed.

 

Once they are triggered your window of opportunity lasts until the next time Powell pivots.

 

Make sure you sign up for my Power Income event at 3 p.m. today. I will be revealing two more tickers – along with the optimal trades to crush it in the weeks ahead.

 

Until then …

 

Live and Trade With Passion My Friend,

 

Griff

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