Issue 41: What Happens When the Fed Raises Rates? - Masters in Trading Digest

What Happens When the Fed Raises Rates?

Welcome to Issue 041 of Masters in Trading Digest.

To start today’s issue, the S&P 500 is bumping into a MAJOR inflection point.

Instead of guessing which way the market trades, we encourage traders to follow the line-in-the-sand.

The Fed raised the Federal Funds rate. What has historically happened to the stock market one year after the Fed raised interest rates?

And finally, a feel-good story from one of the newest members of our coaching program.

Enjoy,
Jonathan

THIS WEEK'S SCHEDULE

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Masters in Trading Digest - Issue 41

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Major Inflection Point For the S&P 500

The S&P 500 Futures closed at a major inflection point this past Friday nudging right up against the 200-day moving average.

The 200-day moving average is represented by the purple line and represents the average price over the past 200 days (or 40 weeks).

For this week, we will encourage Wall Street Wiretapper members to use /ES $4464 as the “line-in-the-sand” for the week.  

  • Any sustained trade over $4464 is BULLISH
  • Any sustained trade under $4464 is BEARISH

We will go over in our Monday Member Briefing the sparks this “line-in-the-sand” can ignite.

For instance, if the “line” holds, and the /ES Futures fail to trade above the 200 period moving average, we know that volatility will trade higher because there’s more uncertainty when markets trade lower.

When volatility trades higher, the premium in options increases benefiting those who are long options (both calls and puts.)

We covered the concept of the “line-in-the-sand” in our MIT Digest Issue 24.

For additional education on Position Management, the designer of Wall Street Wiretapper, Pablo Lucena, calls this video: “This single video packs more actionable knowledge than an entire book on options, plus more.”

What Happens to Stocks When the Fed Raises Interest Rates?

As expected, the Federal Open Market Committee raised its federal funds rate range this past week by one-quarter of a percentage point, to 0.25%-0.50%.  Here’s what happens to stock when rates rise:

The average return for stocks one year after the Fed raises interest rates is roughly 13%.

HEARD IN OUR DISCORD

I am so proud to share this story.

Mike joined the Masters in Trading coaching program a few months back. The 6-month program is like going to any “Trade School” but instead of taking 2 – 4 years to complete, we get you trained and up to speed in as little as 6 months.

These returns are impressive, but notice the feedback I give him?

The trades are excellent right now.  Volatility is allowing these markets to move around quickly, so go after it when the getting is good.  Traders should be aggressive right now.

But it won’t always be like this.

For those reasons, we say – “preserve and build” or “preserve your capital, and focus on building your trading account”…  

Thanks for sharing Mike, and Congratulations!

FINAL THOUGHTS

WHAT TO EXPECT IN THE NEXT MIT DIGEST

This week we will focus on the direction of bonds.

The Fed is raising interest rates, so let’s see how markets are pricing these expected moves.

Keep your feedback coming into support@mastersintrading.com.  We’re excited to share your feedback along with fantastic suggestions for upcoming issues.

Until then, trade smart and always manage your tail-risk.

Thanks for reading,

Jonathan Rose

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