Fed Backdrop
The market prices a 90% chance of a 25 basis point rate hike today. This is hard to square with reality, because conditions on Main Street sit far from what shows on Wall Street. The consumer faces real pressure. Oil and diesel prices are a shock to the system that may not have fully hit yet. The hike will happen, but the market reaction will turn on any guidance from Kevin Warsh. The likely message: hike today, then wait and see, staying dovish about the future without giving firm guidance.
Trade 1: XLI (Industrial Sector ETF) - Bullish
This trade is largely a bet on the Fed. Industrials face pressure from more than oil prices. The US dollar and the bond market will also play a large role in today's session.
I read this as a contrarian buy. XLI is wildly oversold. Using "expected move" - what the option market prices as the likely week-to-week price range - XLI has hit or gone past the lower edge of its expected move for five straight weeks. If the market says it should move $3, it moved past that full $3, five weeks in a row. That is statistically extreme oversold territory. I look for a brief but violent bounce up, possibly from short covering or new money entering a beaten-down sector.
The trade: Oct 16 expiration, buy the 172 calls and sell the 177 calls against them. A $5-wide call spread, slightly out of the money, trading at about a $1.30 debit.
Technical read: Technical analysis is not about predicting; it identifies support and resistance as possible opportunities. XLI has a repeated floor near 169 and has bottomed there. It sits at the bottom of an extended downside channel formed after the highs. Today's candle is a harami - a smaller green candle whose real body (the distance between open and close) fits entirely inside the prior day's larger red body. That is the opposite of an engulfing candle and can signal fading downside momentum.
Levels to watch: an unfilled gap near 165 to the downside; 172 is another gap fill to the upside; 176 was a high during the decline. The 251-day exponential moving average sits at 168.15 (the orange line), right where XLI has hit its lows repeatedly - a longer moving average carries more weight as support, so this is a confluence of that average and prior extreme lows. RSI is holding above the 30 oversold line and showing bullish divergence: price makes lower closes while RSI stays steadier and nears a break above its own downward trend line. Volume profile shows a node from 163 to 166 below, with heavy trading from 172 to 176 above. XLI traded at 171.8 - a short-term play over about the next month, looking for upside.
Trade 2: IBIT (Bitcoin ETF) - Bearish
The vote on the Clarity Act did not go the crypto industry's way and is on hold at least past the midterms, possibly into next year.
Bitcoin and crypto got a bid a few weeks back and have done nothing since. There was a small rally, but beaten-up, disillusioned investors are not coming back. The rally flattened and now looks like it is rolling back over. I do not expect crypto investors to rush back in, so IBIT should fade as Bitcoin fades.
The trade: Nov 20 expiration, buy the 40 puts and sell the 35 puts against them. A $5-wide put spread for a $1 debit. The far-out expiration matters because this is a large spread on a roughly $40 product, and it has to pass through an election with heavy uncertainty. This out-of-the-money spread risks $1 to make $5. Lower probability, but a much higher payout if right. Being right here means getting into the mid-$30s, not just under $40 - and that has happened in recent trading.
Technical read: IBIT fell off sharply from October, when Bitcoin peaked north of $120,000. It has made a bid but stays well below those levels. The 46 to 47 zone is resistance - repeated lows and highs there, and a recent failure point. After a sharp rally it broke through the blue trend line, forming a wedge shape with price falling; a downward-sloping trend line is in play, plus the poor regulatory news.
Levels: a prior high near 42 (green line) could act as support, close to the trend line; another high near 36 is a further area to watch. Moving averages are clustered - the 521 and 251-day EMAs sit together from 40 to 44. A break lower could test the 21-day EMA (representing one quarter) near 40 to 46. RSI is moving lower and at risk of breaking both its green trend line and the 50 midline at once; if that happens alongside price, it is a bearish confirmation. Volume profile shows heavy trading from 43 to 45 (matching the recent range) and from 35 to 39 below, with point of control at 36.43. IBIT traded at 42.81, down more than half a percent on the session.
Trade 3: Meta (META) - Bearish, Short-Term
Meta sits at big-time technical resistance around 680 to 685, and the market is fighting right at that level today. There was heavy call buying this morning - very bullish activity - but it faded fast. So this is a small, very short-term bearish trade before earnings.
The trade: Oct 9 expiration, buy the 675 puts and sell the 670 puts against them. A $5-wide put spread for a $2.35 debit, looking for the underlying under 670. Three to four weeks is more than enough time for a small pullback. This is close to risking one to make one, but Meta has been fairly volatile in this range, giving a decent chance of it playing out in the next couple of weeks.
Technical read: META approaches significant resistance after a sharp rally. The resistance zone runs about 687 to 692, set by two prior highs. It broke above its long-term downward-sloping blue trend line and filled a gap near 659. The chart is gappy: a break lower opens a gap at 638 to 626; a push higher above resistance opens another prominent gap leading to a high near 742.
The 5-day EMA (dark blue) sits at 660.14 - a support point to watch if price breaks below the channel. RSI is in overbought territory at 72.8. RSI overbought usually signals strength to come in a trending market, but META is range-bound here with repeated highs and lows in the same areas, so the opposite read applies - it may signal things are overheated near the top of the range. Price is near the point of control at 658.64, with the general node from 649 to 676. META traded at 675.85, up close to a percent on the session, with the trade's break-even about $4 below current price.
