The markets were rallying yesterday and you may think: “See, you were wrong, we are good.” Well, most likely, we are not good. The markets rallied in anticipation of FED rate cuts. But cutting rates is not a good event. When the FED needs to cut rates, it means something is wrong with the economy. But at the time being, we get a crazy rally.
The question is, will the cut help saving the economy? Boost it? turn it around?
I think we have a structural problem now and the FED cut may boost the economy temporarily but will not stimulate it. Thanks to our Moron-in-chief who has no clue what he is doing we see labor market slowly eroding and when people lose jobs, they stop spending, and when people stop spending, the companies can bend over twice and no rate cuts help them to make money and report good earnings. This rally will fizzle as soon as the markets realize that the cut rates are just a chimera.
How to trade it?
Well, trade what is in front of you. Do not predict or anticipate the next move. Anything you think is happening today can change on a dime in the next hour or even a minute. If you think something is going up, then buy it and hold onto it. If it works, ride it, if it doesn’t get out.
The best approach I found in the past is using volatility as your guide. Is the market calm and complacent? Go bullish and ride it (until it peaks). Then get out and (or reverse to bearish, but not until you see it bearish not because you think it is bearish), and wait for the storm to pass. Then get back in. Easy said, difficult to do. But because it is difficult it doesn’t mean it is impossible. Trade small and be cautious.
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