Is it time to buy the dip or sell the rip?
It’s been a very confusing week of trading… as the bulls and bears continue to duke it out.
Who will win?
You see, I don’t get caught up in silly storylines… the side I’m on is the one that’s making money… And as I’ve been showing you now… money can be made on the downside, as well as the upside.
There’s a lot of noise in the market at the moment. And a lot of people have been asking me who I am listening to in order to stay green in this market.
My answer is always the same:
The cartel that controls all the money- the Federal Reserve Bank.
It seems like whenever the stock market gets in a little bit of trouble… they are able to step in and “facilitate.”
As witnessed earlier this week when the Fed Chair, Jerome Powell, confirmed that he’s got this market’s back… and if that means cutting interest rates then he’s down for the cause.
If you have heard this story before… it’s because you have. In fact, I’ve been writing (and profiting) on this for some time now.
Now, for most people, the topic of interest rates, the money supply, bank assets and liabilities sounds boring… but it actually isn’t to me…
…the way money flows has always fascinated me.
You see, I graduated with a degree in finance, and a master’s in economics from the University of Texas (hook em’ horns)… however, something about economists always bothered me.
(I’ve turned this market into my personal ATM Machine by using old school economics and technical analysis… if you want in on my service then click here to get started now)
They tend to stick to theoretical modeling and academic research. Which is totally fine, but I want to test what I learn and apply it to making money in the stock market… and options are my weapon of choice.
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You see, I’ve made millions in the market from my money pattern. But if you really want to make the big money then you need to know what the big boys are doing.
And there is no one bigger than the Federal Reserve Bank.
That said, there are tons of trading opportunities around an upcoming Fed event.
Luckily for us, there is a key interest rate meeting on June 19, and I want you to be ready for it because if I’m right here, it will be a big day.
But that’s only if you know what to look out for…
No One Man Should Have All That Powell…
The markets got destroyed on Monday… but the Federal Reserve came to the rescue, on Tuesday.
Federal Reserve Chair Jerome Powell noted the Fed “will act as appropriate to sustain the expansion.” In other words, it was an indication that the Fed is ready to consider slashing rates, if the markets get ugly.
However, I know with the Fed, they’re probably going to remain data dependent and take the wait-and-see approach.
Now, yesterday, there was an interesting data point – the ADP Employment Report… missed the consensus estimates by a long shot.
The actual private payrolls came in at 27K… while the Street was looking for 175K.
That said, a rate cut could actually be a reality if we continue to see weak data points across the board…
In turn, exchange-traded funds (ETFs) like the iShares 20+ Year Treasury Bond ETF (TLT) could create some great opportunities.
Before we get into how I’m able to trade around the Fed’s comments and Federal Open Market Committee (FOMC) meetings… and generate triple-digit returns like these…
(Not getting alerts to trade like these on your phone or email? Click here to find out how you can)
… there are some things you need to know about the current market conditions.
How Interest Rates Affect Bonds
If you don’t know yet, interest rates and bonds move in opposite directions. In other words, when interest rates go down… bond prices go up, and vice versa.
It all has to do with opportunity cost.
Remember, Treasury bonds pay a fixed interest rate.
For example, let’s say the FOMC decides to cut rates.
Well, there will be new bonds that are released at a lower interest rate… and that means it would yield a lower return.
So what happens with the “old” bonds that have a higher fixed yield?
Traders are willing to pay a higher premium to get better returns… rather than wait for the new bonds and get a lower yield.
Now, if you understand that… you’re on the right path to trading around the FOMC and spotting opportunities in TLT, as well as the overall market.
For example, check out this daily chart on the 10-Year U.S. Treasury Yield (traders closely watch this).
Notice how yields have been getting destroyed?
Well, this all has to do with the overall economy, as traders are placing bets the economy isn’t as strong as everyone thinks… and the Fed may look to cut rates soon.
Compare that chart to the iShares 7-10 Year Treasury Bond (IEF), which tracks bond prices of Treasury bonds with remaining maturities between 7 and 10 years.
Notice the inverse relationship there?
Now, here’s a look at the daily chart of one of my favorite symbols to trade – TLT.
If you can get a feel for the bond market, it could benefit your trading, and uncover opportunities like these in bond ETFs.
(Think trading TLT options could turn your PnL frown upside down? Click here to learn more)
With the action we’ve been seeing in the bond markets (an inverted yield curve, the market expecting a rate cut)… all eyes will be on the bankers’ bank… and the markets will bite on any comment they make, whether it be good or bad.
That said, there are a few things I’m going to keep an eye on in the FOMC meeting on June 18-19 (under two weeks away).
FOMC June Meeting Preview
Check out the CME Group’s FedWatch Tool:
The market is pricing in about a 30% probability of a rate cut right now… well, guess what could happen with bonds if they actually do cut rates?
They’re probably going to go up.
Now, I’m going to continue to monitor this and assess whether I should be buying TLT call options ahead of the FOMC meeting.
In addition, I’ll be watching macro indicators like:
- Employment Situation
- Jobless Claims
- Import and Export Prices
- Retail Sales
- Industrial Production
- Fed Chair Jerome Powell’s speech on June 19
Not only will I be watching these indicators, I’ll be looking for my money pattern in TLT… just as I did a few weeks ago in the last FOMC meeting…
Just by understanding the money pattern, and a bit of macros… just a small move in TLT generated returns like these.
Now, I’ll be sure to let my clients know if I get into TLT options ahead of the FOMC event, as well as my thoughts on it. If you want to receive real-time alerts, detailed analyses on the market and stocks… click here to get started.
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