Fundamentals Be Darned: Fed Expected To Affect Every Trade This Week

Scoreboard: A tough week for the bulls and ended on a sour note on Friday the 13th. However, Friday's results could have been much worse as the indices rallied into the close to trim the losses down to -.82% on the DOW, -.61% on the S&P; -.49% on NDX and -.36% on the small cap RUT. Having said that, this week was a clear win for the bears: The markets sold hard and with fear followed by two failed bounce attempts. Then finally Thursday brought a decent bounce. Unfortunately, there was no follow through on Friday. The bulls sustained psychological and technical damage this week. However there was good news from the small caps behavior: They flipped on Friday from leading down to outperforming. In fact they finished the week green. Next week: Market expectations are spread wide, so sentiment is even more important than ever. There is big money on both sides of the fence. The open interest shows clear levels that mirror this week's set ups. So, going into next week traders need to be cautious. Most slower traders should sit out the week meaning that it would be wise to avoid risking too much on the March expiration option trades. It's best to use out-weeks and farther from current prices. Why? The Fed event (rate decision) makes the outcome of next week binary on Wednesday. Binary is more of a coin toss which makes tight trades more Gambling than investing. Markets will be looking for the word 'patient.' from the Fed. Here are possible reactions: 1) If the Fed removes it then the market will assume a rate hike is coming within two months. So markets will sell off. 2) If they remove the 'patient' BUT they also specifically say that this doesn't necessarily mean they raise rates in two months then markets will react down on the news and rebound some. 3) If the Fed leave the 'patient' word in then markets will rally. This will likely be a relief pop and shortable. Why? because the basis of the rally is that something bad did not happen. Delaying the rate hike doesn't change the macro thesis as the hike is still coming. 4) If the Fed says or opens the door for more QE here given the bad data they are seeing (retail sales etc.) then markets will rally really hard. That would be a rally I'd ride up a little or at least won't short since it does somewhat changes the macro thesis = new catalyst that was NOT available until then. Question: I was asked if we will we bounce into the monthly expiration. Answer: It's a coin flip since it all depends on the Fed. There are other heavy US economic news but the Fed takes center stage on Wednesday. So how do traders get ready for this week prior to FOMC meeting announcement? The Fed event will affect EVERY trade this week. So, fundamentals be darned. I wait until AFTER the event to upsize my trades based on fundamentals rather than headlines. The Wednesday event has a binary outcome with serious consequences so: 1) I make sure my folio is balanced/hedged and 2) I am far from current prices with regards to credit spreads. I need to remember that momentum stocks were killed on Friday so it may be that risk appetite is waning. The market direction downward feels like an almost certainty; the trigger and the depth are what's in question daily. So, is it a pause for more downside? or rest for more upside? There is big money on both sides of this argument which makes for an iron condor environment; the meander scenario with elevated premiums can reward spread sellers. Variables: * Rate Hike/Fed: There are 3 potential major market moving events: 1) when fed actually takes out the 'patient' word and this could happen next week. 2) When Fed actually sets the date for the rate hike. This will probably happen the following statement. 3) When rate hikes actually kick in. the drop response to rate hike is NOT just psychological. It changes the bull thesis. 1)QE dead 2)anti QE (hike) is on (small but on). * Euro: Continued red today * EQE: Started 3/9. Open ended - data dependent. Coeure said: bought so far faster than expect due to fewer days. It will end in 2016 projected (Sep). So, could it end early? Sure: data dependent means. cuts both ways so good Euro-economic news is bad news for Euro markets. * Oil broke down again and lost 45 for a while. * TLT: Still in breakout territory/mode (bad for markets).

* TNX: Can't hold above resistance.

Ranges: All the ranges are playing out within our expectations with regards to open interest AND trends. Update to follow. - SPY: Sill n danger of losing a long-standing trend (green dashed line). So much rides on the Fed on Wednesday.

- QQQ: The bulls are hoping that the 104/105 area which was resistance becomes support.

- IWM: Silver lining with their relative out-performance this week. It's only inches away from all time high.

Tickers: - The Apple event fizzled and resulted in a bad week for this gem. It needs to hold the thin green rectangle or it could revert to trading the white dashed ascending channel. Puts have recently paid and may continue to pay... Fed event can change this on coin flip.

- GOOG hit the scenario we mentioned on Monday before the open. It sold off to close almost exactly at 547.5 (547.32). It is showing vulnerability so puts here can also pay. But again given the Fed event I keep my trades small and wait until AFTER the event to up the size based on fundamentals rather than headlines. - PCLN did not disappoint us and a lot of us booked profits in this name. - From here, trades all depend on the FED event so it's reasonable that we sit out until then before adding major positions. - XOM: Recently I did a video and so far the doom scenario is unfolding as outline.