Watching the Fed

Latest Interest Rate Decison

Dear Bottarelli Research Member,

Good morning. As you can see from the Dow chart below, the markets opened in a narrow range this morning and it’ll probably stay this way leading up to the Fed’s decision on interest rates due at 2:15 P.M. ET.

While many expect the Fed to keep rates where they are (as close to 0 as possible), the key will be decoding the Fed’s language for clues as to when they’ll begin raising rates. To tell you the truth, if I’m Ben Bernanke, and my efforts to infuse the market with unprecedented amounts of stimulus cash just sparked a 60% rally over the last year, I’d use this opportunity to start raising rates. What better time to scrape rates off the floor than on the heels of a 60% recovery? Of course, we’ll probably hear the same Fed language that we have over the last 12 months, but at the same time, we must remain prepared for the possibility of rates moving up. After all, this has to happen eventually. When it does happen, the markets will get spooked, and we’ll witness a large sell-off. Therefore, maintain your QID April 17 Calls (O:QID 10D17.00) and SDS April 33 Calls (O:SDS 10D33.00) as downside protection.

At the same time, let’s also maintain our CF April 95 Calls (O:CF 10D95.00). With competing fertilizer companies like AGU, MOS, and POT all hitting new 52-week highs, there’ll soon come a day when CF plays “catch up.” When POT raised their earnings guidance, for example, the entire sector blasted higher — except for CF. When investors realize that the recent up-tick has not yet been factored into CF, we could see a large upside move. Hold.

In terms of new plays, I’m continuing to watch shares of Green Mountain (GMCR – NASDAQ) for our standard dip-buying opportunity at key support levels. If the time comes to reload our April 90 Calls, you’ll be the first to know.

Until then…

Lock and load!

Sincerely,