Let's cover the question everyone is asking and no one is answering.
"What should we expect from the FOMC meeting?"
Well, let me tell you....
The consensus floating around from the MSM is that we could raise 50 basis points. But other sources say 25 and yet other sources say 75. But the over-arching consensus is 50.
No "prepare for absolute destruction" warnings have been issued, YET. The past FOMC meeting and the past 2 CPI meetings had these warnings issued by officials prior to the release, saying "I know you were expecting bad, but expect worse". I will be watching for those warnings tomorrow as tomorrow officially commences the meeting.
But in terms of how will this affect the market?
I looked back, tried to make sense out of rate hikes and the stock market and I actually couldn't. I tried to answer this question with statistics. Its unanswerable. It truly is. I am sorry, I know, your stats day trader has failed you :(. But its kind of similar situation between earnings releases and stock behaviour. It doesn't really make sense!
But let me show you what I found in the data, but let me show you from a more qualitative perspective through the chart itself to help you make sense of it:
1994 - 2010
Between 1994 and 2010 there were 3 notable rate hikes.
The % change is displayed in the red box (i.e. the % increase).
We see that 1994 had about a 10% sell of.
2004 and 2010 had initial sell offs, followed by a plateau for the remainder of the year and then a bull run towards the end of the year which actually brought the stock up to positive growth and return.
2015 - 2016
I see the most parallels currently with 2015.
At the time, 2015 marked historic rate hikes for SPY at +233% change.
This led to a 15% sell off, followed by stagnation, followed by a bull run at the end of the year.
In 2016, there was a sell-off at the beginning of the year, followed by sustained growth of roughly 25%.
However, in 2016, there was also an increase of +165%, but the stock market managed to continue to see growth.
Currently
Records made on SPY here.
So far we are sitting at roughly a 15% sell off from beginning of year highs (Which happen to also be ATHs).
So far, we are on track with 2015.
So, is it possible that we stagnate and then recover end of year?
Yes! It is actually.
Am I advocating that this will happen?
I am not sure.
Many will say, "absolutely" and others will say "no way!"
I don't know, I can't know, and I doubt anyone knows. I am not going to lie and bet my credibility on this, because I don't know.
SPY has been normalizing just fine. We have almost completed a regression to the mean. If SPY decided to be bullish suddenly, then, mathematically its acceptable. Truly, it is acceptable.
Do I think it will happen?
I personally don't. But I personally don't know what to expect because these are really weird and unique times.
Also, we had an historic rate hikes last FOMC meeting, SPY sold off dramatically, then IMMEDIATELY reclaimed its high and beyond. Like it was nothing! Don't forget that. Really, this is still fresh in my mind. It was insane! IT WAS INSANE!
Let me just refresh your memory with the March 16th release:
Insane.
Either way, its a hard call. There is no rhyme or reason to how the stock market reacts to rate hikes. Perhaps we enter a place of stagnation and just chill out for some time. Perhaps we drop down into the 350s. I don't know. But this is why I am full fledge day trader in this market (whereas in 2021 I did both swing and day). Because I can admit I don't have any idea what is going on, and I only need to know my conditionals, my probabilities and my bullish and bearish breaks to play intra-day. So far my time series models have been holding out more long term, but we are at that pivotal junction in time where, once we regress to the mean, the question is, do we start entering bear market territory? Which is a fall below the mean and negative growth. I guess time will tell.
As of right now, SPY can fall down to about 380s and still not be in negative growth. We would still be trading well within a normal predicted range. Albeit, lower normal, but right now SPY is on the extreme higher end of normal, so equally acceptable.
A drop below 380 would be considered negative growth, from a math/stats point of view.
I know people are saying "a break of 400 and its a bear market, its going to drop hard, etc." I don't personally see it that way because SPY would still be trading at an expected rate of growth until it passes below 370 - 380 range. But again, I am not an economist or finance guy. Just a statistics person.
What about tomorrow?
So, I think we need a bounce.
SPY is trading roughly -1.66 SDs away from its mean. I expect this to return to some normalcy to give it room to sell off more if it so chooses, or to gap up more.
As it stands right now, from math/technical side, SPY is not poised to sell off very well. Its still very much oversold. I would like to see some more selling, so I would like to see a bit more of a bonce to better position SPY to achieve this. As of right now, I would NOT bet on a dramatic sell off with FOMC results, because its just so oversold. If we get a bit of a bounce today, I would feel more confident about a sell off.
An ideal close price for SPY is truly at least 418 . This would bring SPY up to about -1.45 SDs away from its mean. IDEAL situation is 425 which will bring it to about -1 away from its mean.
My calculated bullish break from tomorrow is 418. I would like to see SPY break over that. It seems promising that we may even see SPY gap up tomorrow morning. that would be great! If we gap up over 418, I would be comfortable longing this. (I did long it today actually from 406, but sold before market closed).
That's it! Another lengthy and wordy post.
SIDE NOTE:
I did a tutorial on calculating probability with stocks. I actually have another tutorial idea, how to calculate bounce prices like I just did in this post (i.e. when the stock is oversold or overbought, how to calculate a realistic target price based on how far away from its mean it is). If this is something that is of interest to you, let me know!
Trade safe everyone!
"What should we expect from the FOMC meeting?"
Well, let me tell you....
The consensus floating around from the MSM is that we could raise 50 basis points. But other sources say 25 and yet other sources say 75. But the over-arching consensus is 50.
No "prepare for absolute destruction" warnings have been issued, YET. The past FOMC meeting and the past 2 CPI meetings had these warnings issued by officials prior to the release, saying "I know you were expecting bad, but expect worse". I will be watching for those warnings tomorrow as tomorrow officially commences the meeting.
But in terms of how will this affect the market?
I looked back, tried to make sense out of rate hikes and the stock market and I actually couldn't. I tried to answer this question with statistics. Its unanswerable. It truly is. I am sorry, I know, your stats day trader has failed you :(. But its kind of similar situation between earnings releases and stock behaviour. It doesn't really make sense!
But let me show you what I found in the data, but let me show you from a more qualitative perspective through the chart itself to help you make sense of it:
1994 - 2010
Between 1994 and 2010 there were 3 notable rate hikes.
The % change is displayed in the red box (i.e. the % increase).
We see that 1994 had about a 10% sell of.
2004 and 2010 had initial sell offs, followed by a plateau for the remainder of the year and then a bull run towards the end of the year which actually brought the stock up to positive growth and return.
2015 - 2016
I see the most parallels currently with 2015.
At the time, 2015 marked historic rate hikes for SPY at +233% change.
This led to a 15% sell off, followed by stagnation, followed by a bull run at the end of the year.
In 2016, there was a sell-off at the beginning of the year, followed by sustained growth of roughly 25%.
However, in 2016, there was also an increase of +165%, but the stock market managed to continue to see growth.
Currently
Records made on SPY here.
So far we are sitting at roughly a 15% sell off from beginning of year highs (Which happen to also be ATHs).
So far, we are on track with 2015.
So, is it possible that we stagnate and then recover end of year?
Yes! It is actually.
Am I advocating that this will happen?
I am not sure.
Many will say, "absolutely" and others will say "no way!"
I don't know, I can't know, and I doubt anyone knows. I am not going to lie and bet my credibility on this, because I don't know.
SPY has been normalizing just fine. We have almost completed a regression to the mean. If SPY decided to be bullish suddenly, then, mathematically its acceptable. Truly, it is acceptable.
Do I think it will happen?
I personally don't. But I personally don't know what to expect because these are really weird and unique times.
Also, we had an historic rate hikes last FOMC meeting, SPY sold off dramatically, then IMMEDIATELY reclaimed its high and beyond. Like it was nothing! Don't forget that. Really, this is still fresh in my mind. It was insane! IT WAS INSANE!
Let me just refresh your memory with the March 16th release:
Insane.
Either way, its a hard call. There is no rhyme or reason to how the stock market reacts to rate hikes. Perhaps we enter a place of stagnation and just chill out for some time. Perhaps we drop down into the 350s. I don't know. But this is why I am full fledge day trader in this market (whereas in 2021 I did both swing and day). Because I can admit I don't have any idea what is going on, and I only need to know my conditionals, my probabilities and my bullish and bearish breaks to play intra-day. So far my time series models have been holding out more long term, but we are at that pivotal junction in time where, once we regress to the mean, the question is, do we start entering bear market territory? Which is a fall below the mean and negative growth. I guess time will tell.
As of right now, SPY can fall down to about 380s and still not be in negative growth. We would still be trading well within a normal predicted range. Albeit, lower normal, but right now SPY is on the extreme higher end of normal, so equally acceptable.
A drop below 380 would be considered negative growth, from a math/stats point of view.
I know people are saying "a break of 400 and its a bear market, its going to drop hard, etc." I don't personally see it that way because SPY would still be trading at an expected rate of growth until it passes below 370 - 380 range. But again, I am not an economist or finance guy. Just a statistics person.
What about tomorrow?
So, I think we need a bounce.
SPY is trading roughly -1.66 SDs away from its mean. I expect this to return to some normalcy to give it room to sell off more if it so chooses, or to gap up more.
As it stands right now, from math/technical side, SPY is not poised to sell off very well. Its still very much oversold. I would like to see some more selling, so I would like to see a bit more of a bonce to better position SPY to achieve this. As of right now, I would NOT bet on a dramatic sell off with FOMC results, because its just so oversold. If we get a bit of a bounce today, I would feel more confident about a sell off.
An ideal close price for SPY is truly at least 418 . This would bring SPY up to about -1.45 SDs away from its mean. IDEAL situation is 425 which will bring it to about -1 away from its mean.
My calculated bullish break from tomorrow is 418. I would like to see SPY break over that. It seems promising that we may even see SPY gap up tomorrow morning. that would be great! If we gap up over 418, I would be comfortable longing this. (I did long it today actually from 406, but sold before market closed).
That's it! Another lengthy and wordy post.
SIDE NOTE:
I did a tutorial on calculating probability with stocks. I actually have another tutorial idea, how to calculate bounce prices like I just did in this post (i.e. when the stock is oversold or overbought, how to calculate a realistic target price based on how far away from its mean it is). If this is something that is of interest to you, let me know!
Trade safe everyone!
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