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Matt's Market Insights

September, 2016 Archives

Watch This Key Level

By Matthew Kerkhoff

 

Groupthink can be a dangerous phenomenon in the financial markets, but it can also provide an advantage in some circumstances. If we know what key price levels other traders are watching, and how they’re likely to react if and when those levels are reached, then we can plan accordingly.

 

Right now a lot of attention is being paid to a certain level in the S&P 500 that marks an alignment of various technical indicators. That level? 2118.

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Takeaways From the Fed

By Matthew Kerkhoff

 

Few people were caught off guard by the Fed’s decision to keep the federal funds rate unchanged, but we did receive some insight into the FOMC thought process that may prove valuable.

 

After listening to various Fed officials speak in recent weeks, many had become convinced that the Fed wanted to, and was ready to move rates higher, simply to get further off the zero bound.

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Stay Long Term Focused

By Matthew Kerkhoff

 

Watching the markets on a daily basis can be harrowing, to say the least. By paying attention to the day to day noise, we quickly become engrossed in storylines and market moves that often don’t matter much in the long run.

 

Fed watching is a classic example of this, where the market becomes frenzied and sucked into a “will they” or “won’t they” mindset. As our focus shifts to short term events, such as whether a rate hike will be announced, we often lose sight of the broader landscape.

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Launching Trial Balloons

By Matthew Kerkhoff

 

Launching Trial Balloons

 

A trial balloon is information that is disclosed with the intention of observing the reaction of an audience. In this case, the market is the audience, and the Federal Reserve Governors are the ones with their fingers on the launch controls.

 

Friday’s massive selloff came as a result of one particular Fed Governor, Eric Rosengren, “floating” the idea that it’s time to raise rates.

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Greenspan's Conundrum

By Matthew Kerkhoff

 

On February 17, 2005, Federal Reserve Chairman Alan Greenspan testified before the Senate Committee on Banking, Housing, and Urban Affairs. He noted that despite a recent 150 basis point increase in the federal funds rate, long-term rates had actually trended lower.

 

Rejecting a variety of explanations at the time, Greenspan called this a “conundrum.”

 

In his experience, movements in short-term rates typically coincided with similar magnitude and direction movements in longer term rates. He described the theory behind this as follows:

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