Lewis Fades The Fed Fake-Out

  • June 28, 2000
  • Marc Dupee

Lewis Borsellino described in his Borsellino’s
S&Ps Wednesday morning how to trade the fake-out pattern in the S&P
futures on the day of the Fed’s announcement on interest rates: “Typically
we have three fake-outs after the announcement, and the direction of the fourth
move is the one to go with.” In his afternoon
piece, he continues, “it’s common to have about three fake-outs in
the hour to hour-and-a-half after the announcement. The trend will likely assert
itself in the final hour of the day. Then stay tuned for the trend to emerge
and/or be solidified in the next few days.” (Borsellino also describes
this pattern in an
interview where he gives an account of the fake-out on the day of the March
2000 Fed rate announcement).

The S&Ps performed in precisely this manner with a
first fake up after the announcement, a fake down, another move up
and then a 15-handle decline from the high to erase all of Wednesday’s gains.
The
September S&P futures
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1471.20. 

The late-decline in the S&Ps pulled other index
futures lower:
NASDAQ100 futures
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on the day of 48.00 at 3815.50.
Dow futures
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3.0 lower at 10,640.0.

 

Tony Crescenzi summed up the result of Wednesday’s Fed
announcement in his Crescenzi
on Credit: “Federal Reserve Chairman
Alan Greenspan doesn’t like surprises when it comes to raising interest rates,
so with almost 80% of the market believing that the Fed will be move to the
sidelines this week, it is almost unfathomable to envision a rate hike as the
outcome of the FOMC meeting.” September T-bonds
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96 15/32 and 10-year notes
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Gold is following through on Tuesday’s late rally and provided an early
indication that the Fed would not raise interest rates at its FOMC meeting
Wednesday. Gold is still viewed by some as a hedge against inflation, and
despite a slow-down in the economy there is some concern that inflation could
seep into the economy due to higher energy costs, a hot tech sector and low
unemployment. Gold
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rallied the last hour into the bell to close at its highest level in three
months, up 6.8 at 294.3.

Gold has also risen in recent weeks as the US dollar has
declined. Most gold purchases are dollar-denominated and a cheaper dollar makes
the metal relatively less expensive, spurring demand. 

Orange juice made good on a Turtle Soup Plus One
Sell signal. Juice was unable to close above the June 20 high, and after an
early head fake, tumbled more than three cents, accelerating as stop loss-sell-orders were hit around 87 cents. The September contract
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one of its largest losses ever, closing down 4.05 at 83.95.

From the Implosion-5 List,
cotton
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PowerRating) continued lower for a sixth day, closing at its lowest
level since April, down .30 at 58.61.