Wednesday, March 18, 2015

FOMC Game Plan

The Fed can be counted on to do one of either 2 things.  1) Be more dovish than expected, or 2) Meet consensus.  You ask, but they can be more hawkish than expected, right?  No, that is like betting on the equivalent of a 100 year flood, the last time they did it was when the market was making all time highs, there was no reason for QE, and they came to their senses (June 2013).  This is not one of those times where expectations are out of line.  In fact, the expectations are too hawkish, considering the death of oil and negative interest rates + QE combo in Euroland.

The big, smart money has already sniffed this out, which is why the euro didn't weaken going into today's FOMC decision, bonds keep rallying, and S&P has been strong.  This negates a lot of the bounce that I expected out of FOMC meeting, but I still expect a bounce in stocks, bonds, and euro, just smaller in magnitude.

As for crude oil, this is one sick market.  Deadly.  WTI prices are beginning to scream to the producers to shut their production or we will go lower.  The producers have still not reduced their production enough, only a WTI price shock lower will get their attention.  This is not that price shock level.  You need to see WTI in the 30s and Brent in the 40s before you get their attention.  Those adding to their inventories in Cushing will only do at lower prices, remember.  They are at inventory levels where they will not chase the market higher to buy.

I, along with most of those trading crude oil, will look to sell any bounce of more than $1.  Look for a $2 bounce and you miss your selling opportunity.

Buy any dips in S&P, euro, or bonds today after the FOMC announcement, as Yellen will talk dovish in the press conference to try to weaken the dollar.

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