The market is preparing for the FOMC decision this afternoon, and in that process, is showing some signs of hedging behavior. The short-term trader has to wonder at this point whether this is an opportunity to prepare for the market to collapse into the end of the year, or an opportunity to leverage the next leg higher?
As we monitor the market’s behavior, it’s clear that there is a growing concern over inflation, particularly given the data last week and the rise in the 10-year yield:
As we see interest rates inch towards 4.5%, investors seem to be taking a pause to evaluate how concerning inflation can become. All this is occurring while the FOMC is expected to continue lowering the overnight Federal Funds Rate. There are growing whispers of stagflation, which can become a real problem.
But, here we are, and mega-cap tech continues to rise while the S&P 500 consolidates near lows of December, and the question on the mind of most is what to do with this information?
Seeing the S&P 500 relatively weak could be cause for an expected inflection point in the market. Should I hedge? Should I reduce risk? Or should I buy this dip for an end-of-year rally?
What if I told you that I could do all three? I can define my risk, reduce my capital exposure, and leverage the potential upside all by using a simple long call option. By doing so, I have the right, but not the obligation, to buy the stock at my selected strike price on or before the expiration date. Sounds attractive when I look at the normal seasonal patterns for the market at this time of year:
Reviewing that seasonal chart gives me further confidence that this dip is normal and that we have historically seen a significant rally to new highs in the week leading up to Christmas, and as a result, there’s a reason for optimism. But that doesn’t guarantee a market rally, especially if the FOMC commentary includes concerning verbiage, so I want to define my risk. And if I pair that with my artificial intelligence signals, I can see that time may just be right to take some risk with a long call option position in SPY, and to do so now!
If you want to learn more about utilizing AI for predicting dynamic markets and the incredible opportunities that can be captured utilizing state-of-the-art technological advancements in trade recognition, send me an e-mail and I’ll be sure to get you all the information you need!
As always, please go to http://optionhotline.com to review how I traditionally apply technical signals, volatility analysis, and probability analysis to my options trades. And if you have any questions, never hesitate to reach out.
Keith Harwood
Keith@OptionHotline.com
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