When it comes to the money game… there is no one bigger than the Federal Reserve Bank. After all, it manages the nation’s money supply.
The Reserve Banks serve the U.S. Treasury… and are often referred to as a “bankers’ bank”
Now, the Federal Open Market Committee meets only eight times a year to discuss the outlook of the U.S. economy and monetary policy.
And later today, it will be releasing the transcript of its latest meeting to the public. So you better believe that I’ll be carefully reading it.
After all, if you want to make more money in the markets… you should follow the group that controls it.
(Why do I care about the Fed? Because they manage the nation’s money supply… and I like money… if you’re searching for ways to multiply your money then click here)
That said, some of my profitable trading comes from Fed events.
For example, this gem in the iShares 20+ Year Treasury Bond ETF (TLT):
(Did you miss this alert? Sorry… but you don’t have to miss anymore, click here to find out more)
Now, TLT options are just one way I like to trade these Fed events.
Read on find out what else I like to trade, as well as, a deeper look into today’s FOMC Minutes.
Trading Around Fed Day
It’s Fed Day today… and markets are going to wait for the Federal Open Market Committee (FOMC) minutes from earlier this month.
Now, we already know what the Fed did… they left rates unchanged and cited lack of inflation pressure. Additionally, the Fed noted the economy was still growing and unemployment has been low.
However, the FOMC Minutes give us greater detail into what the Fed is actually thinking.
Any tiny detail could move the markets in either direction.
That said, if you want to uncover trading opportunities, you should keep Fed days on your calendar… now, let’s take a look at what to pay attention to in the FOMC minutes.
FOMC Minutes Explained
Keep in mind, the minutes are generally released around three weeks after the meeting… so there’s a lag. However, traders still focus on the minutes because it gives them ideas on what to watch and potentially trade.
For example, in April, the Fed released minutes for the March meeting. The Fed signaled rates would likely remain unchanged for all of 2019. Additionally, at the time of the meeting, economic indicators were looking pretty soft.
Now, the markets were pricing in potential rate cuts over a two-year period.
Here’s a look at the dot plots.
Source: coinmarketcap.com, UBS (April 2019)
If you look at the black dots, you’ll notice that the market – as indicated by Fed funds futures – are pointing to lower rates in 2020.
However, the FOMC dots from the March meeting were pointing to unchanged rates, or higher by 2021.
Now, I don’t know about you… I like to focus on what the market is doing. Since the minutes were pointing to unchanged rates… and the market was pointing to unchanged rates, and a small probability for a rate cut, I actually got a head start on a trade.
You see, I was able to game plan and all I had to do was be patient and wait for the next Fed meeting, which was just a few weeks away from when the Fed released its minutes.
Thereafter, I waited for my money pattern, as well as a Fibonacci retracement level to buy the iShares 20+ Year Treasury Bond ETF (TLT). Since the markets were pricing in steady rates with a potential rate cut, I figures bonds should rise.
Bonds are affected by the Fed, and unless the Fed raised rates… I didn’t really have to worry. It was highly improbable the FOMC would look to raise rates given the current market conditions.
(Think trade alerts around Fed Days could boost your trading performance? If so, click here to get started)
If you want to learn more about this TLT trade, click here to continue reading.
You’re probably wondering, “Jeff, how do I start finding trades like this on Fed Days?”
Well, I can tell you what I’m watching for today.
What to Watch for FOMC Minutes
Now, the headline will probably note that the Fed isn’t looking to increase interest rates this year… and they’ll remain data dependent and focus on inflation, as well as other economic indicators like GDP growth and unemployment.
That said, I’m going to be focused on what the Fed has to say about inflation. You see, there was actually a decline in inflation during Q1… but Powell noted it was temporary. The Fed is still focused on the 2% target, and will probably not make moves unless inflation stays well above or below 2%.
If you recall, Powell noted that transitory factors could be impacting inflation… that spooked markets… so I’m going to look for clues as to what he meant by transitory factors.
Some exchange-traded funds (ETFs) I’ll be watching are TLT, SPDR Gold Trust (GLD), VanEck Vectors Gold Miners ETF (GDX), as well as SPY and QQQ… I’ll also be watching gold-related stocks too.
Now, I’m going to be patient with the Fed and wait until after the release to let the market digest the news… unless I see a screaming buy or sell signal in my money pattern.
That said, I’m going to be watching for:
- Fed comments on inflation and “transitory” factors.
- Any clues on where interest rates could be headed.
- Buy or sell signals in TLT, GLD, GDX, SPY and QQQ, and a few gold-related stocks.
Source: WeeklyMoneyMultiplier.com | Original Link