Today was a crazy day with the Fed announcement – and actually the craziness began yesterday with all markets dropping yesterday morning beyond support levels – making everyone think that doomsday is near.
In fact, the Russell actually made yet another lower low – and it was painful holding our bullish IWM calls on the Russell. But the key is not to panic.
We were able to hold through the pain and exit at a profit today as we finally got the rally I was waiting for. Of course, we sold out a bit too soon, but I’ll take a profit over a loss any day.
Also with the metals, everyone anticipated metals to die with the potential of a Fed interest rate hike. Metals died going into the Fed announcement.
And a lot of people threw in the towel. Best not to be emotional.
Fed raised interest rates today Wednesday, March 15, 2017 and now metals have popped up.
For the second time in three months, the Federal Reserve increased its benchmark interest rate a quarter point amid rising confidence that theeconomy is poised for more robust growth.
The move, widely anticipated by financial markets, takes the overnight funds rate to a target range of 0.75 percent to 1 percent and sets the Fed on a likely path of regular hikes ahead.
While I personally added, (my favorite being JNUG + 35% today while NUGT + 20%), I didn’t want to spook people with another add on NUGT in case I was wrong. But the key was not to participate in the sentiment everybody else has — -which is:
“Sell because the Fed is going to raise interest rates and that’s going to be really bed for the metals.”
Well, the Fed did indeed raise interest rates – though it was a quarter point rather than a half point as some may have anticipated. But the point is metals actually went up when the Fed raise rates. It turns out the metals sold into last Friday’s Jobs report – and weren’t able to bounce up until today’s Fed announcement ( or just shortly before it).
Holding onto a losing position is not easy
After the March 1 rally from Trumps speech, the market languished and wasn’t able to get excited until today. However, I don’t think this rally we have strong legs – at least not strong enough to break over 2400 in the immediate term. I could be wrong, but I don’t think it should happen this week.
In my previous chart, my pink line prediction was fairly right in terms of structure, though off in terms of degree. Compare the below diagram with the above diagram.
We di pull back down towards 2360 – except we went past that towards 2355 ES – before staging a comeback rally towards 2380ES.
We hit a high near 2387ES – roughly corresponding to the pink “c” on the chart below.
The Russell was the most frustrating to trade — even yesterday it made yet another lower low – some 7 days straight – until the afternoon rally yesterday into overnight – and then continued after the Fed announcement today.
Given the B-wave low, I am hesitant to say this rally will pierce to new highs. I would expect some more consolidation – but the resistance region is in the upper 1380s and lower 1390s.
The Russell previously dropped so many days in a row that I had to exit my bull put spread at a loss because I wasn’t able to sustain the pain. Of course my entry on the call side on March 13 was not correct – as the next day, we dropped to new lows. While I could have added to my position for subscribers, I didn’t want to double down on what had been a losing trade all last week. Of course, that would have been the right thing to do – to double down when things look bad.
But Fed days are highly unpredictable so better with a small profit than a potentially large loss.
Nasdaq has been the strongest. This morning, it pulled back when most other indices did not — the setup was there for a 3rd wave higher which did take place.
Gold looks like it bottomed last Friday from the jobs report. There was a potential 5-wave B-wave diagonal or triangle that we broke out of after the Fed.
We got a new low at 10am — it appears it was an ending diagonal — as ovvernight, that 4th wave was higher than it should have gone — indicating that a diagonal may be performing. So far we have gone over the pink ‘iv’ as well as the pink ‘4’ — so the momentum is strong enough for us not to revisit those lows in the immediate term.
Recently, we started trading volatility – on February 28, we shorted the VXX (which is the differential between front-month and mid-month VIX futures contracts).
And today, we covered half of our shorts.
What exactly is VXX? – I used to think of it as volatility of volatility – but it’s actually a bit more complex than that.
For my next podcast episode, I’ll cover this topic in depth.
Here’s a daily chart showing when we entered our trade with VXX puts.
We bought the 17-strike June puts – and surprisingly, because of the bid-ask spread of the puts as well as time decay, these puts did not show much profit (was mostly flat) during the drift lower. It wasn’t until the last few days with VXX dropping more quickly that our puts finally showed some good profits (~$600).
So this makes me wonder whether
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