Which Way Wednesday – Fed Edition

It’s Yellen time! 

The last Fed statement came out on January 29th and, as you can see from Dave Fry’s Dow chart on the right from Feb 3rd, it was not INITIALLY well-received.  We had already been heading lower into the announcement and we fell another 400 Dow points in the next 3 sessions (see our February Trade Review for details).

This time is already different as the Dow is already UP 300 points this week, back at 16,336 as we survive another round of tapering (first was Dec 18th and we rallied after selling off into the meeting).  This will be the first time since the taper began that we rallied INTO the meeting so we set ourselves up to be disappointed with a TZA hedge (see replay of yesterday’s Live Trading Webcast), but that didn’t stop us from picking a lot of great, bullish, bottom-fishing trades (also see Webcast). 

In fact, that’s what a hedge is for – to lay the groundwork for more buying – in case we are tempted to move our cash back from the sidelines.

Tempting though it may be, we’re still “Cashy and Cautious” into the Fed Meeting this afternoon (2pm with Yellen speaking at 2:30) and we’re also shorting the Russell Futures (/TF) below the 1,200 line, Nasdaq Futures (/NQ) below 3,700, Dow Futures (/YM) below 16,300 and S&P Futures (/ES) below 1,865.  Generally we look for 2 of the 4 to be under and then we short one of the laggards when they cross – simple and effective.  

We already picked up $100 of Egg McMuffin money with a long play on oil (/CLK4) as the May contracts are a full $1 below the April contracts (/CLJ4), which is a bit stretched as the NYMEX crooks only have two sessions left to roll their fake 58M barrels worth of April orders into fake May orders – so we expected a spike in demand for May contracts today but only playable over the $98.50 line with tight stops and we’re still liking SCO at $30 as an overall short on oil because they still have to dump it eventually.  The April $30 calls are just .90 and SCO was at $31.27 on Monday.