Brian Stutland What You Need to Know Before the Bell: Wednesday, June 14
Happy Fed Day to all who celebrate! Today is expected to bring some movement in the market, and there are a few things to keep in mind as we navigate the day. Over the past few meetings, the Federal Reserve’s decisions have had a negative impact on the market, and it’s worth noting that the initial market reaction is not always indicative of the long-term trend. In addition, there are some concerning signs in terms of call options activity, market sentiment, and indicators of extreme greed. As we approach a quad witching and options expiration, the next two weeks could be pivotal in determining the market’s direction for the rest of the summer.
Fed Meetings and Their Impact:
Out of the last six Federal Reserve meetings, five have resulted in negative market reactions. While the market tends to react to the initial announcement, it’s important to remember that the first move isn’t always a reliable indicator of the long-term trend. Market participants should approach today’s Fed decision with caution and analyze the subsequent price action before drawing definitive conclusions.
Unusual Call Options Activity:
One notable trend in the current market is the overwhelming presence of call options. Calls are bets on the price of an asset increasing, and their volume has been increasing significantly during the recent rally. However, when call activity deviates significantly from the normal range, it can signal a potential top in the market. Traders and investors should monitor this activity closely, as it may provide insights into the market’s future direction.
Diverging Views on the Market:
The market sentiment regarding the current state of affairs is divided. Some view it as a bullish market ready to continue its ascent, while others believe it is an overbought market running out of steam. These next two weeks, marked by the Fed’s decisions and options expiration in a quad witching, will likely serve as a catalyst that helps us better understand the market’s trajectory for the rest of the summer.
Signs of Extreme Greed:
Contrarian investors have pointed out a couple of warning signs in the market. The Fear Greed Index, a measure of investor sentiment, is flashing extreme greed. This indicates that investors might be overly optimistic and complacent, which can sometimes precede a market correction. Additionally, bullish sentiment remains unusually high and has reached a 52-week high, further fueling concerns among contrarians.
Conclusion:
As the Fed’s decision looms and options expiration approaches, it is important for market participants to remain cautious and vigilant. The recent trend of negative reactions to Fed meetings, coupled with the unusual call options activity and signs of extreme greed, should serve as cautionary signals. While some see a bull market gaining momentum, others believe the market is reaching unsustainable levels. The next two weeks will likely provide valuable insights into the market’s direction and set the tone for the rest of the summer. Stay informed, analyze the data, and make well-informed investment decisions in the face of uncertainty.
Joe Tigay 
