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Fed Jitters Hold Stock Market Captive, So What Happens Post-Meeting?

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June 17, 2015

Stocks tip higher in early action Wednesday although subdued trading remains the norm. I know plenty of traders drooling for the 2 p.m. ET Federal Reserve statement, no matter its contents, just so that this painful waiting can end and they can trade.

Tuesday continued the range trading we’ve seen since early May, on sliver-thin volume. The CBOE Volatility Index (VIX) eased Tuesday (figure 1), but not as much as might have been expected as the influential S&P 500 (SPX) index that VIX tracks logged gains. Regardless of what VIX shows, market chatter revealed that risk plays had been steadily reduced moving closer to this afternoon’s Fed release and corresponding 2:30 p.m. press conference for Fed chief Janet Yellen.

Volatility-Follows-Fed

FIGURE 1: VIX FLIRTS WITH TOP OF RANGE.

The CBOE Volatility Index (VIX) briefly shot up to near a test of the range high Wednesday before pulling back to close lower on the day. Data source: CBOE. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Fed: Any Indication? Remember a few months ago when most money was on June for the first U.S. interest-rate hike since 2006? There’s a slim (but not zero) chance it happens today if you ask most industry economists and analysts. Wall Street will be combing the statement and Q&A session not only for clues on timing of the first hike but any signs on the likely cadence at which the Fed unwinds accommodative monetary policy. After a strong payrolls report for May, Street economists are increasingly pointing to September for the first move. But not all market indicators agree. The CME Group’s FedWatch tool is pricing in the probability of the first rate hike around December.

Oh Right, Greece Too. European stock markets struggled again as investors continued to monitor developments in Greece. Tick. Tick. Tick. With less than two weeks until the country needs to repay 1.6 billion euros ($1.8 billion) to the International Monetary Fund, officials have not secured a reform deal with its lenders necessary to unlock the next portion of bailout funds.

Witching Expiration. This big headline week has dwarfed some of the market mechanics that could prove to be the bigger influence by week's end. Friday is one of four quarterly “quadruple witching” expiration and that could inspire at least one good day of volume after the Fed. Witching marks the expiration of futures and futures options on top of stock and index options. That means the big firms with market muscle may have to unwind positions, and the net result might be a bit more trading activity, which could heat up volatility.

Good trading,
JJ
@TDAJJKinahan

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