Ahead of the Fed Bond Yields Stalk Recent Bottom in Rates as Financial System Gears Up for New Level of Operation

The waiting is the hardest part - Tom Petty (RIP)

Markets are on pins and needles ahead of Wednesday’s interest rate decision from the Federal Reserve.  As I noted in this weekend’s Smart Money Trading Strategy Weekly, the tension is palpable as the complex system known as M.E.L.A. is poised to emerge to a new level of function.   

The stock market continues to bet on a Fed Funds rate cut of 50 basis points. It may or may not happen.  But the bond market isn’t taking any chances, which is why it’s a very quiet place right now.  That said, it’s going to be a very interesting set of developments once the Fed makes its move.  Moreover, even if there’s only a 25 basis point cut, whatever Powell says at the press conference will be the major focus in the trading rooms.

The U.S. Ten Year Note yield (TNX) continues to hover near its recent lows.  Yet, a lot of bullishness is already priced into this yield, thus it will take something really big to take it decisively below 3.6%. 

Equally important remains the action in the New York Stock Exchange Advance Decline line (NYAD), which continues to power higher.  This is a bullish development for the stock market, as it signals that even though the large cap technology stocks are still struggling, the rest of the market is still attracting money.

As a result, I continue to add new positions to our trading portfolio.  Last week’s two new trades are holding their own nicely while trades that have been in place a bit longer are still moving higher.  I am adjusting sell stops on the ones which have been around a bit longer to preserve their profit margins.

Finally, I have a new trade this morning, featuring an infrastructure stock with very explosive upside potential.

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