The Fed’s Shady Move
Plus: Watching ESI
Dear Bottarelli Research Member,
Good morning. In my humble opinion, the actions of the Fed over the last 24 hours have been very disturbing. You see, during their last few meetings (one of which was just a few weeks ago), the Fed has stated time and time again that they plan to keep rates close to 0% for an “extended period of time.” But then, thirty minutes after the close of markets yesterday, the Fed shocked the markets by coming out and raising the rate it charges banks for emergency loans by a quarter percentage point to 0.75%. On this news, the pre-market futures fell significantly lower.
According to the futures, it looked like the Dow was going to fall 150 points at the open. Now, this drop wasn’t so much the Fed’s move (which is the first step towards normalized lending), but rather the complete shock of the unexpected announcement. For example, if the Fed was planning on making this move, why not mention it during their last meeting? Why keep it a secret and then spook the markets by making the move after the market closed yesterday?
The entire situation makes me wonder if more of these surprise announcements are on the horizon. Therefore, it just solidifies the fact that we must remain positioned on both sides of this market at all times.
Now, the major market drop that originally resulted from the Fed’s announcement has been tempered from data from the Labor Department, who estimated that core consumer prices fell 0.1% in January. Including food and energy, the overall consumer price index climbed 0.2% last month, which has helped the market trade slightly lower here in the opening moments. Honestly, this is a much better directional reaction than what I was expecting last night. Going forward, we’ll see how these two data points affect the markets.
In the meantime, the time is getting close to add put options on ITT Educational Services (ESI – NYSE).As you know, we hit a really nice winner playing CECO earnings yesterday. Well today, competing for-profit education firm Apollo Group (APOL – NASDAQ) has spooked the sector by forecasting that their second-quarter results will come in below Wall Street estimates thanks to higher-than-normal bad debt expenses.
When it comes to for-profit education firms, bad debt is always a major concern. After all, if students can’t find a job, they can’t pay back their loans, crippling the earnings potential of online education firms. Today’s news from APOL could set a storm cloud over the entire sector. Looking specifically at the ESI chart, the stock could be ready to fall from $100.00 back to support at $92.50. As soon as we get the indication that the down-trend will continue, we’ll jump into the ESI March 100 Puts (O:ESI 10O100.00). But for now, sit tight until we get the trigger.
As always, I’ll come out with further updates as the day progresses.
But until then…
Lock and load!
Sincerely,
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