The S&P 500 has fallen 8.6% this year, but the FOMC has eased the monetary policy 3 times already in 2008 – the fastest easing in over two decades. To me, this points to a sluggish first and second quarter, followed by a period of growth this summer, which hopefully will carry over into the fall.
Minutes from the January 29-30th FOMC meeting were released on 2/20 and reiterated a cut in 2008 growth forecasts, concerns about inflation and in the same breath – recession anxiety. Traders have already priced in a 94% chance that the Fed will lower its lending rate by 50 basis points to 2.5% at the March 18th meeting. This meeting could be the key reversal period to bring the underlying financial markets back up to bullish territory.
At the other end of the spectrum, if the economy is really going into a recession, additional rate cuts will be a band-aid for a broken leg. Rate cuts are a good idea in theory, but rising energy and commodity costs are pushing up inflation and playing a big factor in recession concerns. Even interest rates at zero would still create a multitude of problems for our economy.
Lately, the buzz on the street is the battle between inflation and recession. We’ve also seen stagflation creep into the monetary jive of many economists in print and visual media. A weak dollar, high food and energy prices and a CPI (Consumer Price Index – which is a key inflation reading) which has risen 4.3% in the past 12 months all must be considered when factoring in economic inflation.
As I mentioned last week, the volatility we’re seeing in the E-Mini S&P market is creating a great environment to catch smaller moves and profit for day-traders. Traders who can remain focused and keep cognizant of their downside risks should be feasting in these conditions. However, one issue that is a constant struggle to control when I’m trading is blocking out the constant flow of news and information prevalent in our 24/7 information based society. Should underlying economic conditions factor into your day-trading analysis?
Gold is at all time highs, hovering around $950/ounce. Crude oil broke the $100 barrier numerous times this week, hitting all-time highs. Platinum, Palladium, Nat Gas, Wheat & Corn are all peaking as we find ourselves in the middle of the greatest commodities boom of our generation. The question is: as a day-trader, do I care?
There are many technical factors that I follow while day trading the E-Mini S&P. Price, volume, CCI, Fibonacci to name a few. In all, and for the majority of traders that I work with, day trading seems to be an overwhelmingly technical based discipline.
Economic data that is released before and during the trading day will have an immediate impact on pricing and trend. The difference I want to point out and consider while trading (both trend and day trading) is intraday data versus the greater underlying market status. Fundamental versus technical is the long running battle of interpretation of market data. In my opinion, it is imperative to keep your eye on both factors when trading in these markets.
It is also important to rationalize just what the data is saying and tune out the drama and hype that traditional media is full of. Sticking to your guns when following a technical trend is crucial. Trying to trade based on every “Breaking News” pop-up on television is a very quick way to lose money.
Overall, there is an abundance of negative market data and the trend in financials is down. My market, the E-Mini S&P is down on the year and in my opinion, not going anywhere any time soon. There simply is not any relief statistics on the horizon that will provide reprieve for the doldrums of our current trend. However, the negative bias I have based on our current state does not mean that if a fundamental shift occurs I won’t try and take advantage of the upside.
The most successful traders I know are primarily technical based traders. They use a set of consistent indicators to predict price movement and trend. However, these same traders also realize that they are not bigger than the fundamental trend the market is in. Trying to be the one trader to shift the market, pick a top or bottom, or be the first to take advantage of breaking news is a great way to put yourself in a position of vulnerability.
For specific trade recommendations or to discuss strategy, please call or email me through the contact information below.
Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is significant risk involved in trading futures and or options on futures and may not be suitable for all investors. Investors should consider these risks and evaluate their suitability based on their financial conditions. This information is provided freely and is not in the capacity of a trading advisor.
