QQQ Short-Term Selloff After the Fed's Rate Cut Decision

14 Eyl

If you haven`t bought the recent dip in QQQ:

Then you need to know that as we approach the Federal Reserve's rate cut decision this week, there is growing speculation that the central bank may implement a larger-than-expected 50 basis point cut, instead of the anticipated 25. While rate cuts are typically viewed as bullish for markets, this unexpected move could trigger a short-term selloff, particularly in tech-heavy indices like the QQQ.

Why? The market tends to operate on a "buy the rumor, sell the news" mentality. Investors have already priced in expectations of a modest 25 bps cut, so if the Fed delivers a more aggressive 50 bps cut, it may signal heightened concern over economic conditions, causing traders to pull back. Such a scenario could spook the market, leading to a temporary selloff in major indices like the Nasdaq 100 (QQQ).

In light of this, it may be worth considering a bearish strategy for the short term. Specifically, the $475 strike price puts expiring on September 20 could be a prudent option, as they stand to gain value in the event of a selloff following the Fed decision. The short-term market reaction could make these puts a strategic play for traders anticipating a dip.

While the reaction to the Fed decision could be sharp in the short term, it’s unlikely to be long-lasting. Market participants will soon digest the news, and I expect a recovery by the end of the month. In fact, by November 5th—U.S. election day—we could see new all-time highs in both the S&P 500 (SPX) and the Nasdaq 100 (NDX).

Fed Chair Jerome Powell has been keen on maintaining market stability, which could give the Democrats a slight edge in the upcoming elections. After all, former President Donald Trump has stated he wouldn’t reappoint Powell if re-elected, possibly adding a political dimension to the Fed’s moves.

In conclusion, while the QQQ might face near-term turbulence due to the Fed’s potentially larger-than-expected rate cut, the broader market is likely to recover soon, with tech stocks regaining their upward momentum as the election approaches. The $475 strike price puts expiring on September 20 could serve as a timely hedge during this brief period of volatility.