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Emini S & P 500 and US Interest Rate Hike Possibility
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Emini S & P 500 and US Interest Rate Hike Possibility

  #1 (permalink)
Trading Apprentice
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Emini S & P 500 and US Interest Rate Hike Possibility

I am not always sure how some news events will affect the market.

Does anyone have any idea if a US Interest Rate hike will send the Emini S & P 500 up or down?

I was looking at online news and first they said the Dow dropped last week amind fears of a Interest Rate hike...but today they said the Dow is up 200 points ahead of the Thursday Interest Rate meeting.

As you can see this leaves the newbie trader in confusion.

Is the hike a positive thing or a negative thing for Emini S & P, Emini Dow, Emini Nasdaq etc.?

And is it a good thing or bad thing for the Futures US dollar?

In other words, if there is a Interest Rate hike does that mean (after it is official and the news is out) to sit back place a buy order on Emini S & P (for example), and watch the profits roll in. Or would we place a sell order on ES? And, would we buy USD (Futures) or sell USD Futures?

Or, will people interpret a hike 50/50 so that the market will whipsaw quickly in both directions so trading should be avoided during that time?

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  #3 (permalink)
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All kinds of opinions


I will give you mine. I am half way expecting the Fed to tighten this meeting. I have changed from last month. I expect there will be a large drop in equity prices initially. But assuming a small increase in interest rates ( and sufficient Fed speak) I expect a rather quick turn around in prices. But unless you just like to gamble, I would not position a trade in front of the Fed Freight train.

but I may trade after the first 15 minute bar.

There are many opinions...just my two cents. your mileage may vary.

The problem with trading is one needs to be right twice!
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hifromeddie View Post
I am not always sure how some news events will affect the market.

Does anyone have any idea if a US Interest Rate hike will send the Emini S & P 500 up or down?

I was looking at online news and first they said the Dow dropped last week amind fears of a Interest Rate hike...but today they said the Dow is up 200 points ahead of the Thursday Interest Rate meeting.

As you can see this leaves the newbie trader in confusion.

Is the hike a positive thing or a negative thing for Emini S & P, Emini Dow, Emini Nasdaq etc.?

And is it a good thing or bad thing for the Futures US dollar?

In other words, if there is a Interest Rate hike does that mean (after it is official and the news is out) to sit back place a buy order on Emini S & P (for example), and watch the profits roll in. Or would we place a sell order on ES? And, would we buy USD (Futures) or sell USD Futures?

Or, will people interpret a hike 50/50 so that the market will whipsaw quickly in both directions so trading should be avoided during that time?

Don't even go near your trading terminal when the news comes out.

Liquidity will disappear, market will whip one way and stop out a bunch of people then whip the other way, stopping out more and then whip back again a few more times to screw with more people before it takes a direction.

The "interpretation" (i.e. expectation) will be pricing in as we come closer to the news, so there is no edge there. If the expectation for a hike is very low, and they don't hike, there is a chance the market will actually fall instead of rise because the expectation is already priced in.

i.e. there is a 50/50 chance that you will either see profits or losses roll in and there is no edge, so take your own advice and avoid. Trade what you see, not what you think.

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  #5 (permalink)
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hifromeddie View Post
I am not always sure how some news events will affect the market.

Does anyone have any idea if a US Interest Rate hike will send the Emini S & P 500 up or down?

I was looking at online news and first they said the Dow dropped last week amind fears of a Interest Rate hike...but today they said the Dow is up 200 points ahead of the Thursday Interest Rate meeting.

As you can see this leaves the newbie trader in confusion.

Is the hike a positive thing or a negative thing for Emini S & P, Emini Dow, Emini Nasdaq etc.?

And is it a good thing or bad thing for the Futures US dollar?

In other words, if there is a Interest Rate hike does that mean (after it is official and the news is out) to sit back place a buy order on Emini S & P (for example), and watch the profits roll in. Or would we place a sell order on ES? And, would we buy USD (Futures) or sell USD Futures?

Or, will people interpret a hike 50/50 so that the market will whipsaw quickly in both directions so trading should be avoided during that time?

BofA sees the following winners/losers in case of a tightening (flip if there is none):

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Source: http://www.zerohedge.com/news/2015-09-17/winners-and-losers-fed-rate-hike

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  #6 (permalink)
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Take this from a broader perspective.

The knowledge is based on :
"Stocks will in general drop if the interest rate is going up, because fixed income assets become more interesting.
The money is flowing out of equity and flowing into fixed income."

BUT

Today, if the interest rates are increased, it would be the very first time, since monetary policy
and I am not sure that makes fixed income policy overwhelming attractive in such a way that
we will see massive outflow in equity.

On the contrary, as more and more fixed income paper comes to maturity, it is kind of difficult
to obtain a decent return. Interest rates are very low.

ALSO

If you park capital in fixed income with a long maturity, every time you get an increase in interest,
you get a knock down of the maturity period X delta of the rate. (bond of 10 years and increase
of 1% -> band trading 10% lower).

My conclusion is that even if we all know that at some point in time, it is necessary to tighten the
monetary policy, i don't see an exodus immediately. If it is done without surprises, i think there
could be no exodus at all, and even inflow.

The dollar will be more attractive and the money needs to be parked in some 'asset class'.


That said, this will not help you for today's trading, we can bounce up and down, but i don't see
an massive drop over the next 3 to 6 months, there is not room to bring interest rates to
2, 3, 4, 5 % where it starts to count to trigger and outflow...

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  #7 (permalink)
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hifromeddie View Post
I am not always sure how some news events will affect the market.

Does anyone have any idea if a US Interest Rate hike will send the Emini S & P 500 up or down?

I was looking at online news and first they said the Dow dropped last week amind fears of a Interest Rate hike...but today they said the Dow is up 200 points ahead of the Thursday Interest Rate meeting.

As you can see this leaves the newbie trader in confusion.

Is the hike a positive thing or a negative thing for Emini S & P, Emini Dow, Emini Nasdaq etc.?

Or, will people interpret a hike 50/50 so that the market will whipsaw quickly in both directions so trading should be avoided during that time?

Yikes!

If you're asking for an opinion, and you are a newbie trader as mentioned, unless your strategy uses the advantage of increased volatility somehow you should definitely stay out of the market. There will likely be swings in both directions in the 10-15 point range or larger, then run in one direction only to reverse again. It takes the market with all its participants time to digest news. Nuances in the wording or words themselves are interpreted differently and can take time, sometimes hours or even days before all settles out. Watch and learn from it but don't try to be a hero. Even if it works and you snag a few points, you could start to reinforce bad habits. Practice your discipline today...

Dijon

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  #8 (permalink)
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Was not expecting this.....

So while I was half-way expecting a rate hike and a thrust down followed by a recovery of prices, I did not expect the mirrored reaction we re currently seeing to the opposite "stimulus."

The problem with trading is one needs to be right twice!
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  #9 (permalink)
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choke35 View Post
BofA sees the following winners/losers in case of a tightening (flip if there is none):

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Source: Winners And Losers From A Fed Rate Hike | Zero Hedge


OKshunalTrader View Post
So while I was half-way expecting a rate hike and a thrust down followed by a recovery of prices, I did not expect the mirrored reaction we re currently seeing to the opposite "stimulus."

That's exactly why I showed the BofA estimate in advance.
The trivial "rate hike == bad for stocks, no hike == good for stocks" is simply plain nonsense for the short term,
esp at (potential) turning points.

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