As markets have demonstrated in the past, "free money" leads to higher asset prices.
What happens when the Fed decides to begin to reduce their bond purchases, look to reduce their balance sheet, and prepare for interest rate increases?
Traditional volatility enters into the picture.
For some time we have been warning members of this increase in volatility that is set to come into the markets. We continued to reiterate this in late fall.
The question now is, how will YOU change your strategy?
Intraday scalpers and more experienced day traders outperform and new retail option traders have majority of their plays expire worthless.
This is typically when you find many trading services clamor for the attention of new traders and try to fill in the time for existing members. Despite their efforts, the reality is that once the party begins to wind down a bit and some consolidations take hold, many new traders simply walk away. This is where patience is required, going to cash, and a change in strategy is needed.
Charts begin to set up for both long and short trades as a trending market gets closer. However, during this period the types of follow through and price action shifts from what many have become accustom to.
As of now we are beginning to see divergence set in as markets are now adjusting expectations as a result of the FOMC meeting.
$XLU and $XLV are breaking out to new highs - signs of inflationary and defensive sector plays.
Several other $SPY and $QQQ names are starting to see money flow come in despite what many suggest to be continued selling. We still remain confident of our first upside Price Target for $QQQ and leverage ETF $TQQQ provided to our members.
Ideally, we will have contained selling and scenario 1 plays out. Both have yet to have confirmation. This should occur in the coming days based on our models.
As you head into next year, take the time to review your trading strategy and determine whether it can adapt to an ever changing market environment.
For those interested in signing up for a free trial or membership feel free to reach out! We expect to have more trade suggestions as our end of week updates and our month end updates run in our models.
Talk soon!
-J