There is a lot going on in the markets this week.
We have had a somewhat significant pullback for the first time in a long while.
Actually, since March of this year.
The SPDR S&P 500 (Ticker: S PY) traded to a low on Monday of $428.86, which is down 5.5% from it’s Sept. 2 high of $454.05.
But where do we go from here?
Two main factors we are waiting on are:
- The Fed’s decision on rates today at 2 p.m. EST.
- Will Evergrande be able to pay its creditors on Thursday?
As far as the Fed goes, Jerome Powell and two other regional presidents were busted for some, ahem, questionable trading practices. (Hey, if Congress can, why can’t the Fed?)
Meanwhile, the Dems are trying to pass a $3.5 trillion dollar bill putting us further into debt.
So, I’m confident the Fed decision will be business as usual …
Keep the printing presses running — no change.
In terms of Evergrande, I started writing about them back in July.
Evergrande has $300 billion in liabilities with an $83 million payment due on Thursday.
Can they pay it?
Is the Chinese government a believer in too big to fail, like the USA?
With 200,000 employees and the reverberation it would cause throughout the financial system, I cannot see the Chinese government not helping bail out Evergrande.
Also, check out the Chinese equities iShares FTSE China (Ticker: FXI) stock chart:
It looks like it could be a triple bottom, which could be the end of this downtrend since the February 17 high of $54.53.
Where Do We Go Now?
I believe the markets will trade higher from here …
To make a play on the Chinese government bailing out Evergrande, I am looking at buying calls in FXI.
- If FXI opens and trades higher today, I will be a buyer of the Oct. 15 39-strike calls and I will pay up to $1.15.
- I will wait to take profits over $3.00 because I think FXI could trade back to $42 and I have until October 15th.
- I will take my losses if these calls trade down to $.75-$.80.
Yesterday, I recommended buying the Pfizer (Ticker: PFE) Oct. 01 44-strike calls. I paid $1.03 and they closed a bit lower. I will sell these immediately if PFE does not trade higher today.
Thanks for Reading … See You Next Tuesday!