To The Moon

Raising rates and printing money at the same time!It is like one leg pressing on the pedal and the other stepping on the brakes. Where are we going today? 😂

The Federal Reserve hiked the policy rate by 25 basis points on expected lines but the looming concern is about a potential credit crunch in the economy. Rates are on an upward trajectory, the crisis hasn't abated fully and the flight of depositors is still a potential risk for the banking system.

These worries are expected to translate into lower lending from banks and thereby create a credit crunch in an economy that is already expected to slow down.

False breakout & bounce off 200 SMA

Following the policy announcement, major Wall Street indices witnessed a sell-off on Wednesday as the central bank signaled it might soon pause future interest rate hikes, but Chair Jerome Powell also reasserted his commitment to bring inflation down to 2%. The SPDR S&P 500 ETF Trust (NYSE:SPY) closed 1.7% lower and the Invesco QQQ Trust Series 1 (NASDAQ:QQQ) lost 1.36%.

Former New York Fed President Bill Dudley also pointed out that it's not going to be easy to evaluate some important questions like how are the banking woes going to affect credit conditions and how much is it going to affect economic growth.

"So, I think that we are actually in a worse place today than we were a few weeks ago because there are two forces. One force is keeping inflation high and the other force is slowing the economy down. And we don’t know which one is going to dominate or for how long," Dudley said.

A bloodbath from Janet Yellen's comment

The Fed hiked the policy rates by an expected 25 basis points. A rise in rates almost always translates to a rise in Treasury yields. Two-year Treasury notes, which are very sensitive to the central bank's policy moves, are currently yielding 3.96%, albeit they fell on Wednesday after the central bank's rate decision.

If investors get a higher yield on these instruments, which are much safer than depositing money in the bank under the current environment, depositors definitely will be eyeing a shift away from the banking system.

This holds more importance given that Treasury Secretary Janet Yellen said Wednesday that the FDIC was not considering providing “blanket insurance” for banking deposits.

Another round of bank runs coming?

Tesla CEO Elon Musk criticized the Federal Reserve's rate hike, saying it will accentuate depositor flight which is a major headache for policymakers and the banking industry in the wake of the ongoing crisis.

"A major driver of depositor flight is people moving money from low-interest savings accounts to high-interest money market (Treasury Bill) accounts. This foolish rate hike will worsen depositor flight," Musk tweeted.

A major driver of depositor flight is people moving money from low interest savings accounts to high interest money market (Treasury Bill) accounts.

28% gain from calls and puts trading Fed's announcement. SPY retreated to 200 SMA in the hourly chart while QQQ hit the price target at 315 during J.Powell's speech at FOMC (See post: 3/18 Invesco QQQ). With the banking crisis unresolved and the increased rates hike of 0.25%, trading QQQ could be a safer bet this week.

⚠️ Trading Tips: The sell off after FOMC cause theprice to plunge and rebounded right at 200 SMA. Bulls will want to push above 396 for more upside and bears will try to push below 393. ⭐️ Looking at calls above 395.58 and puts under 393.5 on Thursday. Can we fill the gap or produce another inside bar candlestick on Thursday?

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