Is This Boring Stock Ready To Head Higher? History Says Yes!

March 21, 2023

I don’t know how many times I have to write about this but don’t expect the Fed to do something it hasn’t committed to. I got into a discussion with a friend of mine who is convinced the Fed will hit a pause on raising rates during their announcement today.

The Fed has not hinted at that once. And yet stocks kept climbing higher yesterday as more speculation came out about the Fed reversing course. I could be totally wrong, but I don’t see that happening, especially as the banking situation has turned from a “crisis” to “turmoil”, at least according to most news outlets.

If the short-term issue with regional banks is fixed, I don’t see why the Fed will go against the same stance they’ve had all along – higher rates for longer.

Bank stocks are recovering as more plans come to the table to stabilize the industry. Oddly enough I haven’t heard much from the Oracle of Omaha. With his abundance of cash, he’s usually the one coming to the rescue, creating favorable loan conditions for those who are desperate for help.

So where does that leave us with the Fed meeting today? I’ve identified a swing high and swing low – those are the support and resistance lines on the S&P 500 (SPX). Those are around 4080 and 3800.

I’ve highlighted the previous Fed meetings and the track record certainly isn’t good for the market after the meeting. But what I find interesting is that the last couple of Fed meetings took place when the SPX was above the halfway point (dashed purple line) of the upsloping channel.

This will be the first time in several months that the market is coming off the bottom of the channel going into the Fed meeting.

I ultimately want to see the SPX head up to 4300 to make a new higher high and keep that channel in place. A break above the recent swing high at 4080 would also get us back into the upper half of the trend channel.

What I don’t want to see is a two-day rally around the Fed meeting and then fall apart for the next month, like what happened last time.

Let’s get the Fed out of the way and then we can start finding trades again!

Today’s trade idea uses seasonality. Over the last 20 years, General Mills (GIS) has increased 68% of the time in the 13-week period from March 20th – June 19th. The average rate of return during that 13 period is 3.42%.

It is important to note that GIS has earnings on 3/23/23 before the market opens. This is a trade I would wait until after earnings and after the Fed.

Can this $80.75 stock make it up to $83.50 by mid-June?

With implied volatility down at 22%, it’s a good time to buy options.

I don’t have a specific trade strike and price because they will change after earnings. You also need to know there is a dividend coming around 4/6.

Knowing that there’s a 68% chance of the stock rising over the next 13 weeks, I can develop an options strategy around the historical data and try to stack probabilities in my favor.

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Jeff Wood

Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab

Any trade or trade idea discussed is for educational purposes only.  They will not be tracked as an official trade recommendation. 

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