The Fed pulled the trigger again. Another quarter-point cut.
That’s three in a row. And honestly, it’s about time. I’ve been waiting to make a specific trade …
In my opinion, the rate cuts should be more aggressive.
- Inflation’s sticky but it’s not pushing higher at an insane rate.
- Job growth is stalling.
- Consumers are already crushed under higher borrowing costs.
The Fed’s still cautious of moderate tariff inflation when the economy clearly needs a jumpstart.
But we’ll take what we can get.
Right after the announcement, the market jumped higher. It’s inching toward all-time highs right now.
But the real question is, what happens next?
- Do we see a blow-off top into Thursday and Friday as traders pile into the bullish momentum?
- Or does the rally fade as reality sets back in?
Time will tell.
Our job isn’t to predict. It’s to react. To recognize the trend early, position our accounts correctly, and ride the wave.
Right now, I’m watching a specific trade setup that’s directly tied to this rate cut.
Hurry, while the Fed news is still fresh.
The Bond Market
Let me preface this section by saying: This corner of the market can be a little confusing for new timers.
I’m going to make it as simple as possible.
There’s a phenomenon happening in the market that hasn’t been seen since the 1990’s.
Usually, when interest rates go down, bond prices rise alongside demand for existing bonds, which have larger fixed returns compared to the now lower rates. People buy older bonds and the bond prices go up.
Naturally, my idea is to buy calls for bond-related stocks as the Fed lowers interest rates.
Rates go down, bond prices go up, Jeff makes money.
But that’s not happening right now … And I’m not the only one who’s surprised.
Look at the headline below:
There are a few reasons why this could be happening.
- Some speculate the market is still out of equilibrium since the Fed started to hike rates due to pandemic inflation.
- Some speculate the confidence in bonds is waning due to lack of confidence in the U.S. economy, despite lower interest rates from the Fed.
- There are even some who see the lack of demand for bonds as a sign people are too bullish about the economy and stocks to care about bonds.
Welcome to the stock market, where there are ten different talking suits and they all have their own theory about what’s going on.
Here’s a fresh perspective from yours truly: I don’t care why the bond market is acting fussy.
All that matters to me is that I notice the data.
The more data I notice, the clearer the picture gets, and the better I’m able to trade.
Capiche? Good.
My Options Trade On The Bond Market
The stock I’m watching right now is called iSHares 20+ Year Treasury Bond ETF (NASDAQ: TLT).
It’s a fund that invests at least 90% of its assets in U.S. Government bonds.
As we approached the interest rate decision from the Fed this week, bond prices kept sliding lower.
Remember, bond prices are supposed to rise as interest rates lower …
Then, once the Fed officially announced the lower rate on Wednesday, TLT showed us some key bullish momentum.
Look at the chart below where every candle represents one trading day:
This could be the bottom I’ve waited for.
And if that’s the case, anyone who’s shorting the bond market is in trouble.
Even in the 90s, when bond prices fell alongside interest rates, the relationship eventually returned to normal.
It’s only a matter of time.
Keep your eyes on TLT as the Fed decision sinks in later this week.
Stay Street Smart,
Jeff Zananiri
