Week of September 4

Q3 officially begins

Recap of last weeks action:

Uneventful week for us last week as I didn’t see a great risk/reward set up and preferred to sit it out and observe.

Long time readers know my stance on Powell/FOMC/CPI etc. These events are unpredictable, and you can trade them and you can make money. But over the long term they are too risky and eventually you will blowup. It is literally impossible to predict how the market will react to Powell, and it could have gone either way post Jackson Hole. As we all know 2022 was a massive sell off and this year we had a massive rally. Everyone interprets Powell’s words as something entirely different so you have massive players buying or selling big amounts depending on what they think they heard. Its such a crapshoot.

Trading is all about finding a quantifiable edge, and using it to craft a distinct process, that is repeatable. Then applying it to many scenarios and letting the probabilities play out over a long series of trades, and sizing in a way that you have your edge make you money before blowing up using the Kelly criterion. So taking a position post Powell can make you money in the short term, say a couple instances, but in the long run you end up taking a crippling loss. Its inevitable. If you could predict how the market would react to a Powell speech, any Wall Street bank would hire you and pay you 100 billion a year. Thats why I usually refrain trading FOMC, Jackson Hole, and the next trading day after where the real move often occurs.

Now that we finally got a look at how the market digested Powell’s speech, and a huge data dump over the week, we can finally make a better sense of the price action. Last week was also a classically low volume week, being the last week of summer for many people before the post labor day return from vacation. All the big boys will be back next week for the official start of Q3.

Next move for markets?