The Fed will raise rates by 25 basis points today.
Follow @MrTopStep and @BretKenwell on Twitter and please share if you find our work valuable.
There seems to be a lot of pent-up energy about today’s rate hike. However, the question isn’t, “how much will it raise?” Instead, it’s “Will the Fed signal a slowdown in the rake hikes or signal that they are more to come?”
Honestly, I don’t know but I’m likely going to be long into the afternoon and the 2:00 pm announcement. This has been one of the more well-telegraphed Fed meetings in recent memory and they have all but said “we are going with a 25 basis point hike.” It’s the commentary that is always the wildcard.
The PitBull is too, but he said he’s not sure if the ES will rally 100 points or sell off 100 points. I know this comes at great risk — so, please! Keep this in mind — however, my guess is we see the ES up sharply. I was looking at Friday’s SPX 4175 calls as a lotto play, but maybe you’d rather have some sort of butterfly approach.
Every time it looks like the S&P is about to break down, a wave of buyers comes in and forces the shorts to run for cover. The Nasdaq climbed more than 10% this month, making it the index’s best January in more than 20 years.
While the action has been clearly bullish — and while there is a path higher from here — the longer-term view is that we are not out of the woods quite yet.
As for today though, the only thing that matters is the Fed and what Powell says at his press conference.
Side Note: Don’t forget we get rate decisions from the BoE and ECB on Thursday. As Michael Hewson, chief market analyst at CMC Markets, said, “If we look elsewhere, we can see that inflation is not only higher, but it’s also stickier. In the UK, it’s still in double digits, while in the EU, it has only just fallen below 10% as of January 2023.”
Our Lean: While we think there will be higher prices today, the big question is will the Fed pivot or remain hawkish. If the Fed pivots I think there is a good chance the ES can trade up to 4150-4175. If that doesn’t happen and the Fed indicates they are prepared to keep raising rates, then 3975 to 4000 could come into play.
Our lean is to be long into today’s Fed decision.
Lastly, we talked to our statistician — Rich from Handelstats — and here are the numbers for February.
As you can see, February has been an up-month since 1970, rallying about 57% of the time. However, the average gain in that span is just 0.14%.
Since 2008, February has been a down month though, falling 60% of the time.
MiM and Daily Recap
The ES traded down to 4007.50 at 5:30 am, rallied up to 4042.50 at 7:50 am, and opened Tuesday’s regular session at 4036.75. The ES down-ticked to the 4034.75 level at 9:40 and traded up to 4049.50, dropped down to a new low at 4033.25 at 10:10, and then rallied up to 4061.50 at 11:38. After the high, the ES sold off 10.5 points down to 4051, then rallied up to the 4065 level. After some minor back-and-fill, the ES rallied all the way up to the 4073.75 level at 3:00. After 3:00 the ES sold off down to 4062.50 at 3:29, found its footing, and ripped.
From the 3:30 low to the 4:00 high, the ES rose almost 30 points. At 3:50 the ES traded 4074 as the 3:50 cash imbalance showed $7.2 billion to buy and traded 4090.25 on the 4:00 cash close (up 16 points in 10 minutes). The ES traded 4085.75 at the 5:00 settlement, up 57.50 points or 1.43% on the day.
In the end, if there was one thing that stuck out during yesterday’s rally was the VIX. From the get-go, it started falling and every time it did the ES and NQ up-ticked. In terms of the ES’s overall tone, all the selling was done overnight. In terms of the ES’s overall trade, volume was again solid at 1.70 million contracts.
- NYSE Breadth: 89% Upside Volume (!)
- Advance/Decline: 85% Advance
- VIX: ~$19.50
Now it’s Fed time.
As good of action as we had yesterday, we’re still below last week’s high and struggling to regain 4100 (on the ES).
I’m curious to see the action ahead of the Fed. Do push higher, into (and perhaps over) last week’s high? Directionless chop? How about sulk lower until the news?
Either way, the algos are going to run wild this afternoon.
S&P 500 — ES
Yesterday, we wanted the ES to reclaim the prior day’s low at 4030, which put “4045 in play, then 4050, 4063 and finally 4075-78.” The ES exceeded the top end of that range by 10-15 points with that late-day surge.
If we can clear last week’s high and do so sustainably, 4175 is back in play. That is roughly the Q3 and Q4 high.
On the downside, 4020 to 4030 is the first area of support, but a break of yesterday’s low at 4007 and failure to regain it could open the door down to the 3960s.
It’s pretty damn simple.
The SPY needs to weekly-up to get $410, a major resistance mark from Q4. Above $410 and holding and we’re in a breakout.
On the downside, $400 has to hold as support. If it fails, low $390s are in play.
Perfect test and hold of the rising 10-day ema during yesterday’s Globex, then a picture-perfect rally to our 12,140 zone.
From here, bulls are looking for a daily-up rotation over 12,156. That could put 12,200+ in play, with investors ultimately looking for a breakout over 12,340.
On the downside, 11,975 is a key pivot level. Below that could put yesterday’s low in play near 11,870. A daily-down rotation with regaining this level puts 11,600 in play, +/- 50 points.
Remember, the moves will be fast.
Note: Big tech earnings tomorrow likely plays a bigger role than the Fed in this instance, but for now, the focus is on the Fed. IMO the S&P has a clearer setup than the Nasdaq today.
We shared a handful of setups yesterday, including NVDA, NFLX, TSLA, JNJ, PFE and AQUA. To see them, go here.
A note: After talking to some members, I want to make the setups a bit more clear. We are a trade-ideas service, but want to make entries & exits simpler to understand. We will be sending more updates, a few educational pieces and looking for a way to make our setups more clear in how we are managing them.
- Numbered are the trades that are open.
- Bold are the trades with recent updates.
- Italics show means the trade is closed.
— Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be, B/E or better stops.
From this latest round, that includes TLT, DE and FSLR.
- COP — Long from $119, the 2x weekly-up. Trimmed ¼ at the 50-day. Still watching $123.50+ for the next trim. Can technically raise stops to $118-119 or B/E, (whichever suits your style better).
- If still long, $127 to $127.50 is the next trim spot
- NKE — Down to ⅓ or ½ after yesterday’s $128+ Trim. Looking for $130+ to exit more/all. B/E stop.
- NFLX — Adjust first target to any new HOD and trim ¼ to ⅓. Ideally, we want $359 to $361, then $364.50 and finally $369 to $370+
- Conservative bulls can use a stop-loss near $348. Remember, size right and it makes trading names like NFLX much easier.
*Feel free to build your own trades off these relative strength leaders*
Relative strength leaders →
- WYNN, LVS
- NVDA, NFLX, TSLA
- BA & Airlines — AAL, DAL, UAL
- TJX, ULTA, NKE
- XLE — XOM, CVX, COP, BP, EOG, PXD — (Weekly Charts)