Signals & Trading Plan for Wednesday 9/18/19

Market context
The big event this week was going to be FOMC announcement, which is scheduled for 2:00 PM EST tomorrow Wednesday 9/18.  

However, an important mini crisis happened today that you may want to pay more attention to because it has a direct effect on market liquidity.  According to Bloomberg:

“The Federal Reserve took action <today> to calm money markets...Money markets saw funding shortages Monday and Tuesday, driving the rate on one-day loans backed by Treasury bonds -- known as repos -- as high as 10%, about four times greater than last week’s levels, according to ICAP data.

More importantly, the turmoil in the repo market caused a key benchmark for policy makers -- known as the effective fed funds rate -- to jump to 2.25%, an increase that, if left unchecked, could have started impacting broader borrowing costs in the economy…. 

...the central bank...resorted to a money-market operation it hasn’t deployed in a decade. The New York Fed bought $53.2 billion of securities on Tuesday, hoping to quell the liquidity squeeze.  It appeared to help...  Late Tuesday, the New York Fed said it would conduct another overnight repo operation of up to $75 billion Wednesday morning.”

Here is a lengthy and highly informative explanation on repos.  This stuff is complex, but is worth paying attention to.  This is the type of liquidity problem that can spill over into other markets in a hurry.  It was the lack of liquidity that caused the crash of 2008.  

So while headlines like Saudi oil or Hong Kong turmoil can sound dramatic, pay close attention to anything that pops up on the horizon that can suck the liquidity out of the market.  That’s when really bad crashes tend to happen.

The rest of this article covers:
Table of support and resistance levels
Updates from market internals
Planning your trades

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