There weren’t any real surprises from the Fed on Wednesday afternoon. The Federal Reserve left current interest rates unchanged as expected. The assessment of the economy changed form “Solid” to everyone’s favorite “moderate”. This change was probably a big factor for the Fed to pull down its own expectations for rate hikes this year to 50 points. The forecast also changed from four possible rate hikes to two for the year.
The long term outlook has officially changed. The first quarter economy and market conditions have cause the Fed to back off of their semi hawkish forecast. A lot of markets other than the U.S. Dollar Index seemed to enjoy it. Foreign currencies were up across the board against the Dollar. The Dow and S&P both had nice rallies following the release of the FOMC statement that continued through the question and answer session. The next question will be how long will it last.
I think the equity markets will slowly trend higher in the near term, however long term uncertainly still remains. Speculation about the timing of the next Fed Move, economic date and the upcoming election are all going to factor in. As a trader I look for opportunities to take advantage of any reversals to the downside.
In a long term trade, I am looking to have a position on for a large sell off in the E-Mini S&P 500. I like a ratio spread (1x2) buying 1 December E-Mini S&P 500 1600 put and selling 2 December E-Mini S&P 500 1400 puts at even money. The trade is naked short one put at 1400, but you will be picking up 200 points if the market is in the money at expiration. I’m willing to stay in this trade for several months, setting an initial target of 50 points. If you are able to trade multiple positions, I would look to scale out in 25 point increments.
For those interested Walsh Trading is holding our weekly grain webinar Thursday March 10th at 3:00 PM Central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup.
Director of Commercial Hedging
Walsh Trading Inc.,
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.