It always amazes me how fast traders can switch from fear to greed.

Last month, the prevailing feeling was “higher for longer.” Everyone was biting their nails over a possible rate cut vs. no cut. 

Late last week, one cooler-than-expected CPI inflation print came out and suddenly it’s all soft landing, Santa rally, and the Fed’s cutting by Christmas.

Not so fast, guys. 

This is exactly how people wreck themselves — by rushing to believe what they want to believe instead of seeing things as they are.

Yes, CPI was soft. That’s good news. 

But it doesn’t mean rates are coming down fast, and it sure doesn’t mean the market is going to rise in a straight line into year-end.

The Fed meets again this Wednesday, their second-to-last meeting of the year. They’re watching the same headlines everyone else is, but they’re reading them very differently.

Fed Chair Powell is not going to get on stage and throw a party over one inflation report, especially since the numbers we got are from before the government shutdown. 

If anything, this gives the Fed more reason to stay neutral and hold rates steady, keep the market from getting too far ahead of itself. 

The Fed wants financial conditions to stay tight. It’s the only way they can finish the job of getting rates back to their 2% target and keeping unemployment low. 

But the market doesn’t like “tight.” It wants “easy.” 

So now we’ve got this gap between reality and expectations — and that’s where opportunity shows up.

Here’s why it’s knocking on your door. 

Cart Before the Horse

This is one of my favorite setups: a market that’s front-running a dovish Fed…before the Fed even speaks.

I’ve seen it for 20 years. The crowd prices in good news, chases risk, volatility gets crushed, and the upside gets crowded. 

All it takes is one measured press conference from Powell, and the whole mood shifts.

That’s exactly what I’ve been preparing for heading into Wednesday’s rate decision — a reaction to the reaction.

Look at how implied volatility dropped like a rock after Friday’s 3% CPI report. That tells you people got confident, maybe too confident, and they started buying stock without buying protection.

That’s your edge.

You don’t need to guess what the Fed will say this week. All you need to do is look at how the market is setting up before they say it. 

Right now, traders are positioned for a softer tone, no surprises, and a clear path to lower rates next year.

All that has to happen for this to unwind is for Powell to do exactly what he’s done all year: keep the door open, say he’s watching the data, and refusing to commit to a cut.

Suddenly the “easy money” trade looks a little less easy.

I’m already spotting premium setups lining up — especially in the big indexes. After last week’s strong run, things are stretched short-term.

If we open strong again today, that’s the kind of move I love to fade. Not calling for a meltdown, just expecting a reality check.

When the market runs hot into a high-stakes week like this, it doesn’t take much for momentum to stall or snap back.

That’s when defined-risk trades shine. You can position for a pullback or a pause with low-cost setups that don’t need a crash to pay.

This is the kind of environment where staying nimble gives you the edge. Big expectations + big uncertainty = opportunity.

The rookies will be chasing calls into Wednesday, hoping for a greenlight.

We’re going to let them.

I’ve made a pretty good living by doing the opposite of what the crowd wants to believe. And this week, that means staying patient while they rush in.

Let them overreact. Then take their money.

Stay street smart,
Jeff Zananiri

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*Past performance does not indicate future results. Results not typical.