NASDAQ
US indices climb this morning in premarket trading as retail sales roll in. It seems that markets may be bullish going into the Fed rate decision tomorrow with mixed retail sentiment. Retail m/m sales beat expectations, but Core retail sales came in lower than expected. Not really much of a reaction from this data since most of the volatility is likely going to caused by tomorrow’s rate cut.
US indices climb this morning in premarket trading as retail sales roll in. It seems that markets may be bullish going into the Fed rate decision tomorrow with mixed retail sentiment. Retail m/m sales beat expectations, but Core retail sales came in lower than expected. Not really much of a reaction from this data since most of the volatility is likely going to caused by tomorrow’s rate cut.
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S&P 500
SPX touches near all time highs again which seems likely to test during today’s session. Upside may be limited, however. Analysts are still calling for a 50 basis point cut on FOMC tomorrow with a 67% chance that it will happen according to the CME FedWatch website. Any cut greater than 0.25% could indicate that the Fed has not acted quick enough to save the economy, specifically the jobs market. Although rate cuts are going to devalue the dollar, it doesn’t necessarily mean that the stock market is going to be bullish.
SPX touches near all time highs again which seems likely to test during today’s session. Upside may be limited, however. Analysts are still calling for a 50 basis point cut on FOMC tomorrow with a 67% chance that it will happen according to the CME FedWatch website. Any cut greater than 0.25% could indicate that the Fed has not acted quick enough to save the economy, specifically the jobs market. Although rate cuts are going to devalue the dollar, it doesn’t necessarily mean that the stock market is going to be bullish.
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Gold is no longer bullish on the EdgeFinder after hitting all time highs again this morning. This neutral score may not last for long, however. Gold prices could definitely be overextended in the short run, but there are many reasons for the metal to continue to outperform for the rest of the year.
A harder cut from the Fed would likely indicate a weaker US economy and dollar. Not only would the 50 bp cut make gold more attractive, but the narrative around this cut is likely pointing towards an economy at risk of a recession.
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A harder cut from the Fed would likely indicate a weaker US economy and dollar. Not only would the 50 bp cut make gold more attractive, but the narrative around this cut is likely pointing towards an economy at risk of a recession.
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Gold
While stocks may be entering into the last leg of their rally this year, gold seems like a better trade than the US indices. Gold is outperforming the NASDAQ this year, and is up 25% versus 18% for the tech index. This will likely continue in Q4 and probably next year. If we do end up seeing a 50 bp cut tomorrow, gold will probably be bullish. If the metal pulls back, some levels of support for long setups could be around $2,530 and $2,460.
While stocks may be entering into the last leg of their rally this year, gold seems like a better trade than the US indices. Gold is outperforming the NASDAQ this year, and is up 25% versus 18% for the tech index. This will likely continue in Q4 and probably next year. If we do end up seeing a 50 bp cut tomorrow, gold will probably be bullish. If the metal pulls back, some levels of support for long setups could be around $2,530 and $2,460.
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FOMC day gameplan!
25 bp hawkish cut: I think this is the least likely scenario, as stocks and gold have rallied significantly leading into this event expecting a dovish fed. However, with a dovish expectation largely priced into the market already, I think this poses a downside risk skew in the case we get a surprisingly hawkish fed. This would be a very bearish reversal for stocks, gold, and bonds.
50 bp hawkish cut: Markets are actually expecting a 50 bp cut this week - but could be surprised by a large initial cut followed by cautious guidance from here. In this case, the stock market and gold could go sideways to down, as the market rally only continues if we get consistent rate cuts from here.
25 bp dovish cut: In my view, this is the scenario I think will happen. It's possible the fed will cite progress in inflation, mention slowing (but not crashing) labor data, and issue a bite sized rate cut to kick things off. I think in this situation gold and stocks would pullback a bit, setting up nice long term buying opportunities. This would be a not too hot, not too cold scenario that signals the feds willingness to cut rates, but believes they are not too behind the curve.
50 bp dovish cut: What the market thinks is most likely. In this case, the fed would start off with a "jumbo" rate cut, and signal that they think they can afford to do multiple meaningful cuts due to their restrictive current policy. Historically however, we need to be aware that IF we see an acceleration in economic slowdown, this would quickly look like the fed is "behind the curve" and could cause some fear. However, as long as economic data remains healthy enough, this would be the most bullish scenario for stocks.
- Nick
25 bp hawkish cut: I think this is the least likely scenario, as stocks and gold have rallied significantly leading into this event expecting a dovish fed. However, with a dovish expectation largely priced into the market already, I think this poses a downside risk skew in the case we get a surprisingly hawkish fed. This would be a very bearish reversal for stocks, gold, and bonds.
50 bp hawkish cut: Markets are actually expecting a 50 bp cut this week - but could be surprised by a large initial cut followed by cautious guidance from here. In this case, the stock market and gold could go sideways to down, as the market rally only continues if we get consistent rate cuts from here.
25 bp dovish cut: In my view, this is the scenario I think will happen. It's possible the fed will cite progress in inflation, mention slowing (but not crashing) labor data, and issue a bite sized rate cut to kick things off. I think in this situation gold and stocks would pullback a bit, setting up nice long term buying opportunities. This would be a not too hot, not too cold scenario that signals the feds willingness to cut rates, but believes they are not too behind the curve.
50 bp dovish cut: What the market thinks is most likely. In this case, the fed would start off with a "jumbo" rate cut, and signal that they think they can afford to do multiple meaningful cuts due to their restrictive current policy. Historically however, we need to be aware that IF we see an acceleration in economic slowdown, this would quickly look like the fed is "behind the curve" and could cause some fear. However, as long as economic data remains healthy enough, this would be the most bullish scenario for stocks.
- Nick
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My watchlist for the rest of this week / FOMC:
Silver: bullish around $29.80 an ounce
Russell2000: Bullish around 2100, or on a breakout/retest of 2220
USD: Neutral! Bullish above 102, bearish below 100.70. Watching for bullish setups on USD/CAD
- Nick
Silver: bullish around $29.80 an ounce
Russell2000: Bullish around 2100, or on a breakout/retest of 2220
USD: Neutral! Bullish above 102, bearish below 100.70. Watching for bullish setups on USD/CAD
- Nick
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Forwarded from A1 TRADING | Stocks & Options
My watchlist for the rest of this week / FOMC:
$SMH (Semiconductor ETF): bullish at 215.00-220.00 range, or
$XLY (Consumer discretionary ETF): bullish on a breakout / retest of 195.00
$XLC (Communication services ETF): bullish on a breakout / retest of 88.00
- Nick
$SMH (Semiconductor ETF): bullish at 215.00-220.00 range, or
$XLY (Consumer discretionary ETF): bullish on a breakout / retest of 195.00
$XLC (Communication services ETF): bullish on a breakout / retest of 88.00
- Nick
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RUSSELL
Small caps break out of a wedge pattern and hover near early month highs. This break could suggest further moves to the upside as the rest of this week is likely going to be volatile. RUSSSELL’s bullish score on the EdgeFinder has intensified leading up to the rate decision suggesting that we could be getting a positive reaction to the news. Lower interest rates will likely impact the index’s score/price action more dramatically. The biggest moves are expected to happen this afternoon on both the decision and the following FOMC statement. There are too many uncertainties at play. A 50 bps cut is probably not a bullish sign for the stock market, but it could cause a bullish reaction initially. It might be wise to hold off on trading until the news.
Data from the A1 EdgeFinder
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Small caps break out of a wedge pattern and hover near early month highs. This break could suggest further moves to the upside as the rest of this week is likely going to be volatile. RUSSSELL’s bullish score on the EdgeFinder has intensified leading up to the rate decision suggesting that we could be getting a positive reaction to the news. Lower interest rates will likely impact the index’s score/price action more dramatically. The biggest moves are expected to happen this afternoon on both the decision and the following FOMC statement. There are too many uncertainties at play. A 50 bps cut is probably not a bullish sign for the stock market, but it could cause a bullish reaction initially. It might be wise to hold off on trading until the news.
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Replay of 2007?
This is a chart of the 10 year crossed with the 2 year bond yield. The two sets of horizontal dotted lines are the markers of inversion and reversion for 2007-08 and 2022-24. If the Fed does cut by 50, we could see this chart's value increase as the short term yield will likely fall harder than the longer term yield, creating a steeper divergence.
The reason I'm pointing this out is because the inverted yield curve chart has been very accurate in predicting a market fallout in the following months. Although it's not going to tell us exactly when a recession will happen, it has foreshadowed several major crashes in the past, 2008 being the most recent.
This is a chart of the 10 year crossed with the 2 year bond yield. The two sets of horizontal dotted lines are the markers of inversion and reversion for 2007-08 and 2022-24. If the Fed does cut by 50, we could see this chart's value increase as the short term yield will likely fall harder than the longer term yield, creating a steeper divergence.
The reason I'm pointing this out is because the inverted yield curve chart has been very accurate in predicting a market fallout in the following months. Although it's not going to tell us exactly when a recession will happen, it has foreshadowed several major crashes in the past, 2008 being the most recent.
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Metals tend to perform more optimistically on lower rates since the act in cutting reduces the value of the dollar, specifically silver. Assets like silver and gold trade directly against the dollar, and will likely see further upside this year.
Silver is more sensitive to interest rates than gold since it is not just a shiny metal but also carries more utility than its gold counterpart. If the stock market were to tumble, metals would probably be a safer position to be in.
Data from the A1 EdgeFinder
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Silver is more sensitive to interest rates than gold since it is not just a shiny metal but also carries more utility than its gold counterpart. If the stock market were to tumble, metals would probably be a safer position to be in.
Data from the A1 EdgeFinder
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Oil production will become more manageable with lower rates, but there are some supply issues surrounding it. With less borrowing costs, consumer demand may increase to help prevent an oversupply. Going into the election, politicians would like oil prices to be low, but the commodity may have bottomed out.
Price tested the lows of December 2023 and rebounded nearly 9% from those levels. There is still significant resistance in the way, but oil prices could steady in the fourth quarter after its 25% this year. The next level price could test is around $71.60 on the 1D timeframe with support around $67.
Data from the A1 EdgeFinder
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Price tested the lows of December 2023 and rebounded nearly 9% from those levels. There is still significant resistance in the way, but oil prices could steady in the fourth quarter after its 25% this year. The next level price could test is around $71.60 on the 1D timeframe with support around $67.
Data from the A1 EdgeFinder
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Treasuries are largely overlooked as they are not as exciting as metals or stocks, but with more interest rate cuts on the way, yields will drop causing bond prices to rise. This will happen gradually over time, and their performance may be muted for some time if demand for stocks continue to be robust for the rest of the year. But it is still a likely winner for Q4 and most likely 2025.
Data from the A1 EdgeFinder
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A1 TRADING | Indices, Commodities, Forex, Futures
Photo
Silver 4H Chart
Silver long position, initiated in VIP on FOMC day.
We've got a nice runner here! Trailing stops just below 4H lows.
Silver long position, initiated in VIP on FOMC day.
We've got a nice runner here! Trailing stops just below 4H lows.
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