The game plan for September remains the same as August: Day Trading. The only reason to track data for a trader is not to know what the volatility, trend, and what the market fears. It is still a well-kept secret if the Federal Reserve knows what they will do with rates for the remainder of this year. For this reason, it continues to make sense to embrace day trading and short-term swing trades.
Without the certainty that the FOMC won’t hike one too many times, the hesitant optimism of the indices can be seen in the choppy uptrend. There is no reason to speculate about macroeconomic trends; the data is already there.
Inflation trends are heading lower, says the CPI. This puts the focus on jobs. Measuring the sentiment of employment means two data releases, JOLTS and NFP.
“Bad” news is “good” news: The data shows the jobs market is cooling. The trend has been down, and last week’s release reached a new 12-month low.
As the jobs picture weakens, traders and investors expect the Federal Reserve to tap the breaks. With this, expectations for a pause continue to increase. Measure the data, and there is no reason to guess. Target Rate Probabilities are determined by a futures contract called the Fed Fund Futures. When trades are placed in this contract, it, in turn, allows traders to see the expectations for a rate hike, pause, or cut for each FOMC Meeting.
It’s about the FOMC’s “reality”: FOMC Bostic’s comments could be telling: “Underlying inflation may well be close to our target already.”
Anytime there is an adjustment concerning what the Fed will do at the next meeting and the meetings after that, there are usually only two scenarios: The high probability expectations and the next most possible outcome. Reading the data is as simple as looking at two columns, the tallest and the next tallest. Here’s what the data shows.
The pause for the September 20 meeting is currently clocking in at 93.0%. The only other possible expected outcome is a 7.0% expectation for a quarter-point hike.
There is no meeting for October, which brings up the expectations for November. Here, there is more hawkishness in the data, with 64.8% expectation for a pause and 33% expectation for a hike. What do expectations wrapping up the year look like?
When traders or investors want to commit to longer-term time horizons (think trends that will continue for days, if not weeks), there needs to be a clear path in monetary policy. It does not need to be rate cuts! Consider that the overall bullishness of 2023 in the indices led by the NASDAQ and the S&P was during an aggressive tightening cycle. The challenge is that the clarity is far less because market participants do not know when the FOMC will begin cutting rates, and that’s because there is still some expectation that there is still one more quarter-point hike waiting in the wings.
In need of more reasons to keep day trading? How about this?
October 1st: The clock is ticking on the budget. We know how this will end… but there will be uncertainty and volatility in the meantime. The chop is warranted when looking at seasonal tendencies for September and that the House will return on September 12. Ready to take your day trading P&L to the next level? Be sure to join us on September 9th as we take a deep dive into how you can, and should, be trading for today’s market and beyond! Join us here…