Pre-FOMC Bounce Play.
S&P 500 Long Thesis
In my opinion, an opportunity to buy this market pre-FOMC is here. The main reason “why” is always going to be price when it comes attempting to pinpoint selling/buying exhaustion. The ones who move prices, get to dictate where the market goes. Yes, the market is dominated by algorithms, but they still have to be developed by humans. The players who dictate where prices go, leave footprints. The goal as a trader is to align yourself to take advantage fear and intuitively identity when and where money is trapped.
The S&P 500 has fallen more than 2% on ‘uncertainty’ ahead of December’s FOMC. It’s suggesting the market is overpricing in fear and selling off as a result. Best believe that the FOMC presser is released behind the scenes before it gets out to the public. The markets are ‘hyper-front-run’. It seems like they are pricing in no big surprises from the Fed tomorrow. When the FOMC meeting occurs and uncertainty is removed, the market may react favorably even if the headline is ‘bad’. It’s not about the actual news, but the delta to priced-in expectations. It’s good that we’re heading into the FOMC meeting red in my opinion. The consensus estimate is for an acceleration of taper between $10B-20B/month and potentially signaling for up to 3 rate hikes in 2022. As long as there are no big surprises, I think we’ll see some relief heading into year-end once the uncertainty of that meeting outcome is removed.
From a technical basis, QQQ filled the 386 gap as aggressive bids came slightly below at 384. Theory to a gap filling and then rejecting is that market makers neutralizing (buying-back) their short positions. On 12/6, the call buying imbalanced forced MMs to take the other side. As price comes back into that area, the short call positions go back into neutral territory, theorizing MMs would cover those shorts, creating buying pressure. As price got below 384 on QQQ, shorts trapped themselves, fleeing to cover as low volume nodes were seen on the tape. Overall, in my opinion the risks in the short term are more to the upside than they are to the downside.