Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Play the Fed Minutes Hawkish Surprise
Transcript
- Lucas: So the Fed minutes dropped this afternoon, and they were a bit more hawkish than the market wanted. The S&P's down about 1.2 percent on the week, and the VIX has ticked back up to 14.89. The headline is that officials still see a rate hike as a live option if inflation doesn't cool. Luna: That's a big deal because just a few weeks ago, the market was pricing in cuts by year-end. Now we're talking about a hike? What changed? Lucas: Right. I think the key is the minutes don't reflect the latest data. They're from the July meeting, but the language is more cautious than the market had assumed. There's a line about 'the need for further tightening if inflation proves sticky.' That's a direct shot across the bow. Luna: So how do you trade something like that as a day trader? The immediate reaction is usually a dip, but sometimes it reverses. Lucas: Exactly. The first thing I look at is the first hour. If the market can hold the opening low and reclaim the previous session's close, that's a bullish sign. But today, the S&P opened weak and kept sliding into the afternoon. That tells you the selling is real, at least for now. Lucas: The VIX going from around 14.5 to 14.89 is only about forty basis points, but it's the direction that matters. We've been in this low-volatility regime for weeks, and any crack in that calm is a signal. Luna: And what about the VVIX? I saw it was down 3.2 percent even as the VIX rose. That's a divergence, right? Lucas: Yeah, that's a really important tell. The VVIX measures the expected volatility of the VIX itself. When spot VIX goes up but VVIX falls, it suggests the market isn't panicking. It's more of a slow grind higher in vol, not a spike. That's typical of a repricing, not a crisis. Luna: So maybe the dip is a buying opportunity in some sectors? Lucas: Possibly, but you have to be selective. Small caps, for example, are down 0.7 percent this week, but they've been leading the rally off the lows. If the Fed turns hawkish, small caps are usually the first to get hit because they're more sensitive to rates. I'd watch the Russell 2000 in the first hour tomorrow. Lucas: Another thing: the 9:45 AM reversal signal. We've talked about that before, but it's especially useful after a news-driven selloff. If the market makes a lower low in the first fifteen minutes and then reclaims the opening range by 9:45, you can fade the initial move. Luna: That's a concrete play. But what about the broader context? We've had this calm tape for weeks, and now the minutes throw a wrench in it. How do you position yourself for the rest of the week? Lucas: I think the key is to not assume the selloff continues in a straight line. The VIX is still below 15, which is historically low. We could easily see a bounce that traps the bears. The best approach is to trade the levels, not the narrative. For the S&P, watch the 7,700 area. If that breaks, the next support is around 7,650. If it holds, we could see a retest of 7,750. Luna: And what about events like Carvana? That's another headline today, with the Mark Walter probe. How do you handle single-stock news like that as a day trader? Lucas: That's a perfect example of event-driven risk. Carvana's been under pressure all week. When a probe like that hits, you can't predict the outcome, so you have to respect the move. If you're trading it, you're playing the momentum, not the fundamentals. I'd set a hard stop and not get greedy. Luna: Yeah, that's a good reminder. The market's going to be jumpy for a few days, so maybe it's better to reduce position sizes. Lucas: Right. And that's actually a good segue to something I've been meaning to mention. We make this show every day, and it's only possible because of a small group of listeners who chip in monthly through buy me a coffee dot com slash fexingo. No ads, no sponsors, just that support. Luna: It's true. We get to keep the show ad-free and focused on what matters to you. Even a few dollars a month makes a huge difference for us. Lucas: So if you've gotten value from the episodes, consider joining them. But back to the tape — the other thing I'm watching is the VIX term structure. Right now, the front month is below 15, but the second month is a bit higher. That's a normal contango, but if the front month starts to rise faster, that's a warning sign. Luna: How can a day trader use that in real time? Lucas: You can look at the VIX futures. If the front month is up more than 5 percent in a session, that's a signal that the market is getting nervous. But if the back months are flat, it's likely a short-term spike, and you can fade it. Today, the front month is up about 1.8 percent, so it's not extreme. Luna: Got it. So what's your game plan for tomorrow's open? Lucas: I'm going to watch the first fifteen minutes closely. If the S&P gaps down but holds above 7,700, I'll look for long entries on the 9:45 signal. If it breaks below, I'll consider shorting the rallies. And I'll keep an eye on the VIX — if it spikes above 15, that's a whole different ballgame. Lucas: But I also want to caution against overreacting to one day. The Fed minutes are backward-looking. The next big data point is the PCE inflation reading later this month. That's what will really set the tone for September. Luna: So maybe the best trade is no trade at all for some of us. Lucas: Sometimes that's the smartest trade. The market's telling us it's uncertain, so there's no shame in sitting on your hands until the picture clears. But if you do trade, keep it small and stick to your plan.