Don’t Fight the Fed!

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Heather Cullen

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In The Money

Heather Cullen Blog In The Money ITM Strategy Don't fight the Fed

Don’t fight the Fed!

This week was dominated by the 50 basis points cut in interest rates – something that had a very low probability just a few weeks ago. The saying ‘Don’t fight the Fed’ was attributed to Martin Zweig, and means that betting against the Fed’s policies, especially when it is moving interest rates, is a losing strategy.

Most people think . . .

That the Fed is a government institution. It isn’t. The Board of Governors is appointed by the President, and each serves a 14 year term. There are 7 members: Powell has been the Chair since 2022, 1 was appointed in 2018, 3 were appointed in 2022, and 2 in 2023.

Who is the Fed?

The ‘Fed’ – the Federal Reserve – was created on December 23rd, 1913. Does the date sound interesting? Yes, it was right before Christmas when many lawmakers had already left for the holidays, and the public were distracted. What time was the vote? 2:30 AM!

Why so late at night?

To avoid delays, filibusters or opposition. Supporters – including President Woodrow Wilson – wanted to capitalize (pun intended) on the holiday timing, when many opponents were absent or distracted and so it could get through with little opposition.

Who didn’t want it?

Opposition came mainly from rural areas, which at that time accounted for 54% of the population (1910 census).

They thought that the power would be concentrated in the New York bankers.

However, there was considerable support among ‘progressives and urban business elites’.

It was presented to the public as a tool to bring more government regulation to the banking sector.

Heather Cullen Blog In The Money ITM Strategy Don't fight the Fed

Why did they do it?

The story is that it was in response to the financial Panic of 1907, and was to provide a ‘stable and secure monetary and financial system.’  Of course that didn’t quite work out. Pretty well right away they had:

1920s Bank Failures & the Great Depression

The Fed failed to provide adequate liquidity to the banking system during the late 1920s and early 1930s leading to widespread bank failures, which worsened the economic downturn. 

 The bank failure numbers are staggering; during the 1920s approximately 600 banks failed per year, and in the years 1930 – 1933 more than 9,000 banks failed. Who knew there were so many banks? That kind of makes sense about all the westerns involving bank robberies.

Heather Cullen Blog In The Money ITM Strategy Don't fight the Fed

But apart from that – did the Fed work?

Heather Cullen Blog In The Money ITM Strategy Don't fight the Fed

According to AI: 

While the Federal Reserve Act was presented as a reform to control private banking interests, the practical result was that New York bankers retained considerable power within the new system due to their central role in the U.S. financial markets.

Why the focus on the Fed?

Because they control so much of the market. They make a change to the interest rates (rather late, IMHO) and the market jumps! People hang on their every word; the Fed minutes are pored over, each phrase dissected for hidden meaning, each word for nuance.

And, of course, they can affect the economy in ways that reduce individuals’ purchasing power, increase borrowing costs, and diminish returns on savings – effects that can feel like a form of “indirect taxation.”

To the markets

An interesting week on the whole. I was rather nonplussed on Wednesday when the market went DOWN after the interest rate announcement, but it certainly made up for it the next day. Friday was triple witching, and I was expecting a down day after the huge increase the day before, but it was relatively minor. Let’s check the charts:

SPY Charts

SPY took out resistance at $565 and made a new all-time high. The 2 days above it were ‘doji’ candlesticks, showing that the market was uncertain which way to trade. Interesting that the low on Friday was exactly on the resistance line (red dashes), checking for support. Fingers crossed that it holds.

Heather Cullen Blog In The Money ITM Strategy Don't fight the Fed

The weekly chart shows that the uptrend is still in place.

Heather Cullen Blog In The Money ITM Strategy Don't fight the Fed

QQQ Charts

The QQQ had a nice week also, but has not yet made new highs. It is positioned right up against the blue resistance line at $485. If it takes it out next week then it will come up against resistance at $500, where it retreated last time.

Heather Cullen Blog In The Money ITM Strategy Don't fight the Fed

On the weekly chart we see that it is right on the lower bound of the trading channel of the last year. Interesting to see if it gets back into it.

Heather Cullen Blog In The Money ITM Strategy Don't fight the Fed

SPYG Charts

SPYG is following a middle path between SPY and QQQ. Like QQQ it has not made a new all-time high, but it has taken out resistance at $81.50 which is good. Will it make a new all-time high this week? Let’s hope so!

The weekly chart shows the uptrend intact:

Heather Cullen Blog In The Money ITM Strategy Don't fight the Fed

VIX Chart (Volatility)

Volatility is under 20, so low-volatility environment.

NVIDIA Chart

Just out of curiosity let’s see what is happening to NVDA:

Heather Cullen Blog In The Money ITM Strategy Don't fight the Fed

We can see that it still hasn’t reached its earlier high established in June, and is trading right on its 50 day SMA, an indicator beloved of many traders. I have also drawn in a symmetrical triangle pattern (the 2 blue arrows), which can be read as a bullish sign or a bearish sign, depending on whether it breaks to the upside or downside. We won’t know which until it happens.

As we know, indicators work best in hindsight. 

ITMeter

Heather Cullen Blog ITMeter

ITM Trader Chat Room

I know that trading can be a lonely pursuit, so have been thinking about setting up a chatroom on this site. I thought that rather than get onto a disreputable chat sites full of sharks, having it hosted here would be good so that traders can chat with others that know what they are doing and have no vested interest. Could you let me know via the comments if you think this is a good idea?

Of course, it would need someone to manage it – monitoring conversations, removing inappropriate content, partitioning into topics etc. If anyone is interested in being the manager / moderator, could you get back to me, either through the comments or the contact form? It would be an honorable but honorary position!

Cornish Tin Mine Strategy

I finally worked out what my subconscious was trying to tell me, and have started work on a new strategy. There’s still a long way to go but it looks promising.

Heather Cullen Blog In The Money ITM Strategy Unrealized Gains

I know it sounds a bit ‘woo woo’ but I do think that our subconscious can sort out things that our conscious mind is too busy / blinkered to do for itself. I have often been surprised to wake up with a solution to an IT problem which the night before had seemed unsolvable.

The week ahead . . .

Jerome Powell (Chair of the Fed) is due to talk on Thursday. I really wish that many would just shut up – the market always gyrates when he talks. Other members are scheduled to talk also, so you can be sure people will be poring over their every word to try to deduct some meaning. The PCE price index is due on Friday which may also cause some problems

Futures

Heather Cullen Blog In The Money ITM Strategy Don't fight the Fed

At this point the futures look positive, but we have more than eleven hours to market open.

Fingers crossed for a good week!

Heather

Q & A

42 Responses

  1. Hi, I read both ITM Bull and Bear about 2 months ago and it is the best system I have run across in all my years of investing and option trading and started reading your post and blog and have really enjoyed them.I have never been involved in a chat room but would like to give it a try. All your bloggers seem like the type of people that would make it enjoyable.. Thank you so much for doing what you do and sharing your ideas.
    Jim

  2. Dear Heather,

    Thank you for your weekly blog. I am very excited that you have decided to create a chatroom so more people can get involved and contribute their talents and ideas.

    Cheers to the next 25 years from 2025 to 2050.

    I feel like I am back in 1965 when Warren Buffett took over Berkshire Hathaway along with the help of his friend, Charles Munger, and his original Warren Buffett partnerships.

    Sincerely,
    George Halongton

  3. Hi Heather,
    I would like to thank you for taking the time to update us with your blog every week. I like the idea of the chat room

  4. Hi Helen, I bought all your books, read each 3 times, opened Schwab account to practice with paper money. I am not able to match the trades you reference in your book to the 10/200 moving average ribbon SPDR chart. I cannot see where Golden and Death Cross occurs at the dates you cite. Is there a different moving average chart I should consult. Thanks, the info is great.
    Jerry

  5. Zoom is going to be hard with people all over the world. Times zones make it really difficult. But slack sounds good.

    1. Hi Kate – I was really thinking about a chat room, I only mentioned the Zoom call during the set up period. You are right – with people all over the world it would be quite impossible.
      h

  6. I have belonged to a few different chat rooms. My favorite, and most successful has a moderator that is constantly looking for “good” trades – those supported by the current trend and using some of his favorite, simple strategies. (He is primarily a directional options trader). What makes the room enjoyable, besides the sharing of trades, are the strict rules of No POLITICS, No berating of individuals. We focus on trades .. bullish, bearish, or best to “sit on hands”. There are weekly learning sessions some open to members only, others open to the public.

    … for what it is worth …

    1. Hi Vern – yes, I agree, to focus on trading and strategy, not a general free-for-all.
      I’ve found the people who comment here to be lovely and I don’t think they would be at all likely to berate others! But we will have a moderator to make sure that nothing like that happens.
      Thanks
      h

  7. I’d also like a chat room, it’s pleasant to exchange ideas and learn from each other. Besides WordPress and Discord there’s also Slack, which is really very well conceived, but unfortunately only free if you don’t want to scroll back more than 3 months and search too subtle (paying if you want those too). From that viewpoint Telegram is superior – free for unlimited history/search – and superior in terms of functionalities, clean interface and flexibility.

  8. Hi Heather,
    Chat is a great idea.
    I do have a question on volatility. Although it’s below 20 on the chart. I notice it’s on an uptrend. Is there any meaning to that from a charting perspective?
    Thanks,
    Blake

    1. HI Blake – great that you are interested in a chat room.
      Re volatility – it is on a slight uptrend, and I think it will continue that way until after the election and we know what we are dealing with. Uncertainty always makes the market twitchy and volatility increase.
      Now watch as I am proved wrong!!
      h

  9. I don’t like chat rooms. Despite my following you, and l really like your blog, I have always found that others voices can cause me to be distracted and may influence my trading. I make enough mistakes on my own without borrowing or being influenced by other’s mistakes.

    Also, I am also too onery to take on an honorary position such as a Moderator of a chatroom.

    1. HI Tommy – I get not liking chat rooms, most of them are quite nasty and have people with agendas. I think this one will be different as we are all trying to do the same strategy and have a good understanding of options and the market.
      Hopefully it will be a place where people can bounce ideas / compare results / commiserate when the market turns nasty, and celebrate when it is good!
      I think I will give it a go anyway!
      h

  10. Dear Heather,
    Having a chat room or a Discord room is a wonderful idea. I am interested being a manager or a moderator and helping out. Please let me know. Thank you very much.
    Sincerely,
    George Halongton

    1. Hey George – thank you! I will just see how many people are interested and if there is enough then we can skype / zoom and have a chat to talk about how it can work. I hope it won’t take up too much of your time – maybe someone else is also interested in moderating / managing?
      Thank you!
      h

      1. Dear Heather,
        I would love to attend the Zoom or Sky meeting with others investors and traders of the ITM Method. I live in Los Angeles by the way. I hope you can schedule a good time so many can meet up on Zoom or Skype.
        Sincerely,
        George

        1. Hi George – just going through the replies I think there is enough interest to start – will email you later about the first decision we have to make.
          Thank you again for your offer of help!
          h

  11. Hi Heather,
    Hosting a chat here is a great idea. I would love to chat with other like minded traders.

  12. Hello, Tried 3 times to make the purchase below using 2 cards from 2 banks. Each time: “Your card has been declined.” Both cards are well funded. I am not set up with G-Pay, but I do have Paypal. Please advise when able. Thank you, John XXXX In The Money: Bull Market Strategy × 1 $7.00 In The Money: Bear Market Strategy × 1 $7.00 Subtotal $14.00

    1. Hi John – sorry about the hassle – I’ve tried it myself and it seems to be working.
      I have checked the woocommerce logs and all it is saying is that the card was declined – no reason given.
      However, apologoes for the problem – if you check your email you will find both books with my compliments.
      h

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