Wednesday, November 2, 2016

Fed Short Squeeze Coming

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*The market is clearly worried about the elections.

*Today though we have Fed fish to fry. While most expect the Fed to guide to a December hike, we think the chances for that are slim.

*That would be a reason for shorts to cover and have a nice rally after the Fed decision.

*We analyze Put-Call data to show you that from this high level of bearishness the market typically bounces.

We wrote on Sunday that we thought today's FOMC statement could have a dovish surprise. While most expect a rate hike in December the Fed likely can't guide for that. We've read in the press that investors expect guidance for a December hike. A lack of direct guidance could be taken as a signal that the Fed is more dovish than the street believed. That could send stocks higher (NYSEARCA:SPY).
Let's see what's happened to stocks over the last week.
In trader terms this is called pressed down. The term assumes we can get a lift. The Fed at 2PM today could be that lift.
Source: Interactive Brokers
We did say Sunday that this week could test the SPY level of 212. The market closed below that level yesterday which is more bearish. That said we would not short. The Fed news could get the market to snap back especially as shorts have been moving up.
Fed Short Squeeze Coming
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