September 18, 2019
Posted 9:30 AM ET - Trading volume has been extremely light and everyone is waiting for the FOMC statement today. Only three out of the last 20 days have had above average trading volume. This is a quadruple witch and activity should be brisk the rest of the week. Fed officials are divided. Some believe that three rate hikes are needed this year as an insurance policy against a global economic slowdown. Other Fed officials feel that domestic growth remains strong and that no rate cuts are needed. I tend to agree with the later group. Retail sales, ADP and ISM services have been strong and I believe doves will be disappointed with the FOMC statement. Trade concerns with China have eased slightly on the promise of face-to-face negotiations in October. There will not be a trade deal before the 2020 election, but both sides will try to calm investors during the next year. Trade deals with Japan, Canada and Mexico are possible this year and they would take pressure off of the Trump administration if they materialize. Brexit has been delayed until January 31st, but Boris Johnson is doing what he can to force England out of the EU on Halloween. I mention credit often and there is a recent wrinkle here of all places. Overnight repo rates skyrocketed yesterday. It seems that bank deposits are falling below reserve requirements and there is a temporary cash crunch. Some analysts believe this is due to quarterly taxes paid by corporations. They had to withdraw large sums of cash and that has left banks strapped. The Fed is likely to inject liquidity. I don't see this as a long-term issue, but I will be monitoring it. Earnings season will begin in a couple of weeks. There have not been any warnings and that is a good sign. Stocks are trading at the upper end of their valuation range and good news is priced in. Swing traders should remain in cash. Asset Managers are not going to chase stocks at the all-time high when forward P/E's are elevated (17). I'm expecting a pullback after the FOMC statement and when the dust settles there will be a good buying opportunity. Ideally we will have a chance to buy at SPY $294 or lower. I don't like trading the short side on a swing basis when central banks are easing. I believe the drop will be swift and the bounce could be violent. Day traders can get short on a negative reaction after the FOMC statement today if the low from Monday (SPY $299.45) is breached. Wait for the momentum to be established and favor the short side. I'm not is anxious to buy if the reaction is positive. I will need to see a clean break through $302.45 before I do that. Look for very dull action until the FOMC statement. This is a quadruple witch and we could see a nice activity the rest of the week. . .
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