I have been in this trading racket for a long time.
Thirty-plus years at last count, with the last 10 teaching retail traders.
One constant is that we are always in a market cycle.
Right now, we are coming to the end of the Fed Accommodative Cycle.
I would mark this end with the largest peacetime expansion of government spending and Fed intrusive policy in the history of our great Republic.
And what did it get us?
I will leave that to historians, but I know it was expensive.
Will equity markets still be able to have a place in the brave new world of Fed non-intrusion?
Today, the US government owes $20 trillion and US equity markets are worth $40 trillion. If every US citizen kicked in another $2,857 per year that would be a $1 trillion deficit reduction.
Put another way, if the US government SPENT $2857 less per person, per year that would shave $1 trillion off Uncle Sam’s bill.
This is not an insurmountable problem, but it is an issue.
Maybe a dividend Congress will solve it. Maybe not.
Anyway, we are at the end of a massive accommodative cycle for the Federal Reserve …
What will that leave us?
The graphic above leaves us a clue.
Down, Down
As in a down market and down volatility.
The biggest condition of 2022 was the up market, historically up volatility move.
The massive spikes in SPX were accompanied by moves up in VIX. That is not a normal pattern historically, when the rallies are sharper than the selloffs.
That was an offshoot of extraordinary involvement by the Federal Reserve. After yesterday’s FOMC meeting notes, that involvement will get … more predictable.
The Fed is out of the market until February. VIX puts have bid now all the way down to 16. If there is no hopium upside catalyst, that will kill market volatility since we would need actual fundamental reasons for stocks to rally. It becomes more of a market of individual stocks and conditions.
I do like owning these downside VIX puts as a trade.
By Friday I expect massive potential decay which will be easy to see with the right tool.
Time for a new regime and the Easy Trade Button will play in any market condition.
The Rundown
Vol Trade Club
I bought a VIX straddle on the VIX Dec. 21 20 puts, 20 calls and closed for a 35% gain. Five wins in a row, with two more trades currently up.
Nitro Trader
Mark has not had a losing close since Oct 6 and is running a ton of winners, to which we add Berkshire Hathaway Corp (Ticker: BRK.B) Mar13 300/325/350 call butterflies closed for a 52% gain.
Vol Edge
Mark with another nice trade. VIX Jan. 123 puts closed for a 27% gain
Power Income Trader
Bill is still rocking with the Barclay iShares Gov’t 20 year+ bond fund ETF (Ticker: TLT) Jan20 108/105/102 put butterflies closed for a 8% gain.
SpyMaster
SPY, VIX Jan. 20/Jan. 18 400/385 put vertical spread & 23 puts closed for a 27% gain
To Your Trading Success,
AG