FOMC Rate Drop Surprises the Market: Analysis, Reactions, and Trading Insights
Sep 23, 2024
THE WEEK
The big news this week was the FOMC’s decision to drop interest rates by 50 basis points. I had thought the drop would have been 25 basis points based on the data being released. Normally you see larger drops when there is crisis management needed such as much higher unemployment rates or a drop in the Gross Domestic Product (GDP). None of these points had become apparent in the economic new releases. I was surprised by the interest rate drop and by the trading herd’s reaction.
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With the .5% drop in interest, I would have expected the Market to react favorably and gone up. It did until Powell’s press conference started 30 minutes after the announcement. His remarks caused the Market to then go lower and lower. We covered the ‘what’s and why’s’ of these conditions thoroughly in our webinar on Thursday.
The good news is a day later the Market went up and broke through a very strong 52-week high. |
LOOKING AHEAD
The only major economic release this week is the CPE announcement on Friday. Powell also has a speech on Thursday. I don’t believe there will be much reaction by traders to either of these events. Overall, I am expecting a quiet trading week. Price/action has broken through a very strong 52-week resistance forming a new high.
A couple of interesting points I saw are gold has hit an all time high again. I am considering another leap trade. A leap trade is buying an option in next year chain. In this case I am considering buying a CALL at the money (ATM) in March 2025.
The other interesting thing I noted was Friday’s trading on Gamestop (GME). It was 6 time its average volume and the stock price zoomed up. This is a stock whose price is driven by social media posts. And it looks like it is happening again. GME’s implied volatility is quite high right now, however, if I see the stock price start to shoot up I may but a CALL option several weeks out and just play the game. This is not a stock I would invest in long term.
HOW AM I DOING?
It was a so-so week. I had not done much trading waiting for Wednesday’s FOMC announcement. When I saw the trading herd’s reaction, I did not jump back on my trading and decided to wait another day. Also facing a health issue that took up a lot of my time. I was not on top of trading at all this week. Life happens.
Thursday’s Webinar
I am taking the week off to resolve my health issues
Tammy will be teaching this week. She is one awesome teacher and a very insightful trader.
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