Hey Pit Crazies!

So today is the biggest news day of the year.

And no, it’s not that my chickens discovered the back porch (which they have). 

Today the FOMC tells us if they will cut rates or not and if Microsoft (MSFT), Google (GOOGL), and Meta (META) can produce the big dollars that everybody expects.

The chickens don’t have to worry about earnings or the Fed, but anybody who trades does.

So here’s what happened…

The Fed cut rates by 25 basis points and said they don’t know what they will do in December. This isn’t a surprise because they depend on data. Except, of course, when we had “transitory” inflation that stuck around forever. That most likely came from the massive government spending we had in 2020, 2021, and 2022.

Right now they depend on data for December, but they did say quantitative tightening will end in December. Again, they depend on data because of a slowdown in hiring. The Fed takes a wait-and-see attitude. 

Is AI cutting jobs? Is it immigration? 

Whatever the reason may be, they wait and see.

VIX Did Not Sell Off at All

The biggest issue is that VIX really did not sell off at all. And that created a bit of a problem because the Fed came in and there weren’t too many surprises. The QT ending seems bullish to me. That we won’t decide on a December cut because of data, isn’t a surprise. 

That’s par for the course.

So you would think VIX would go down a little bit more, but the problem is this: we need to wait for big tech earnings to come before we see lows in VIX.

And when you come down to it, that really is the issue. We need to see the earnings. We need to see the proof in the pudding.

Stocks have gone straight up. Upside call volatility, as I described in these columns earlier in the week, has gone straight up. 

And to be quite honest, it has been a one-way flow show for the S&P 500 (SPY), meaning the big money flow has been in upside calls in SPY pretty much for the last two weeks. And as I write this today, that really didn’t look like it slowed down a whole lot.

Traders really look for long volatility, long the market.

That also screws us for making extreme lows in VIX. It really does. Powell’s prevaricating really makes it hard to see lower lows in VIX. As he plays coy with rates, that adds to uncertainty. And of course, uncertainty makes it harder for VIX to go down.

I expect to see a path toward lower volatility into the Thanksgiving holiday, which is now about a month away, just not as low as I would like. Once this bunch of big tech earnings are out, we should know all of that information by Friday.

So a volatility bloodbath, if it happens, won’t happen until Friday. And that’s the way I’m positioned. I’m seeing if we get any kind of a Friday meltdown in volatility with stocks at all-time highs, looking at 6,900 and I believe 7,000 before Thanksgiving.

To Your Trading Success,

AG