Uncertainty Surrounds the Fed's Next Move

May 24, 2023

The recent release of the Federal Reserve’s meeting minutes has left many questioning what lies ahead. With persistent high inflation and a string of ten consecutive rate hikes, reaching a 16-year high at around 5.1%, the central question remains: how much higher is the Fed willing to go?

Unfortunately, the Fed seems to lack a definitive answer. Officials expressed uncertainty during the previous meeting regarding the extent to which rates should be raised. There is speculation about a potential pause in rate hikes at the upcoming June meeting, but the Fed remains open to further increases if inflation continues to exceed the 2% threshold in the coming months.

In any case, it appears unlikely that a rate reduction is on the horizon, which aligns with the Fed’s clear stance on the matter. Despite the market anticipating rate hikes soon, the Fed has maintained its position. Christopher Waller, a member of the Fed’s Board of Governors, emphasized, “I do not support halting rate hikes unless there is clear evidence of inflation moving closer to our 2 percent objective.”

Adding to the market’s concerns is the ongoing issue of the debt ceiling. In light of these factors, the markets have experienced a decline over the past few days.

While there may be various narratives attributing the market’s price action, from a technical perspective, the S&P 500 (SPY) is currently exhibiting a pattern of higher highs and higher lows. 

Although the market is retracing from its recent peak, such behavior is considered normal, as illustrated in the chart below.

Today I’m looking at Block Inc (SQ).  This is a mobile payment company.  I’m not in love with the long-term chart.  I would be surprised to see a down day in the next day or two, but that’s when I’d look to place a small, bullish trade.  There’s support at the $55 level.

If you want more wiggle room in the trade, I’d look to go further out in time and sell a cash-secured put or a bull put spread around $55. Maybe start off at the June monthly expiration.

If you’re a little more aggressive and looking for the potential for weekly income, the 2 JUN $58 put is going for a credit of $0.53. That’s the potential to make $53 on a $5747 investment in the next 9 days, or about 1% in a week.

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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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