Stocks traded sideways on Friday while the dollar remained relative flat ahead of the biggest week of 2010.
The Fast Money desk is bracing for 3 major catalysts that are all but sure to deliver a one -two -three punch next week.
First there's the election Tuesday, with the Street hoping that business-friendly Republicans gain control of the House and perhaps even the Senate.
Then there's Wednesday’s Fed announcement, in which the central bank will likely announce more details about the much anticipated new round of quantitative easing or QE2.
Then on Friday there's the jobs report. It’s hasn’t attracted as much attention as the election or QE2 but it’s likely to be every bit as market moving.
How should you position?
#1: QE2 -- TRADING THE FED
Markets have rallied sharply since late summer when the Fed first telegraphed that another round of quantitative easing may be needed to jumpstart the economy.
However, with the Fed likely to reveal more details about the size and scope at the conclusion of their meeting on Wednesday, many investors fear too much is priced in and the market will be disappointed.
What’s the takeaway?
I suspect that QE2 is fully priced into the market, says Steve Grasso of Stuart Frankel. It would have to be ‘a whole bunch bigger’ if it’s really going to have any more impact. I think we’re at a level in the S&P where it’s time to get short. The gains have probably been made.
I’ve turned cautious last week after being pretty bullish since the end of June, says Jeff Saut of Raymond James on Wednesday’s Fast Money. I think we’re pretty long in the tooth here. We may have put in the peak last week.
No doubt, there are a lot of cross currents in this market, adds Guy Adami. I’ve been bearish on the market. I agree gains to the upside have probably been made.
Options action suggests to me that investors are looking for volatile moves, next week, adds JJ Kinahan.
Meanwhile, Goldman Sachs says the Fed will likely buy longer dated securities including 30-year bonds as a part of its decision next week, not just shorted dated bonds, explains host Melissa Lee. Take a look at Goldman's note:
”We expect the Fed to announce a program of public debt purchases next week, starting with US$ 500bn and potentially growing up to US$ 2 trillion...these will likely be spread across the entire term structure, including the 30-yr maturity ...it could result in a flattening in the 10-30s portion of the yield curve after the FOMC announcement.”
What should you be watching?
I think Goldman is right on this point and I’d get long 30’s, says Steve Cortes.
#2: TRADE THE VOTE
Looking at the mid-term elections on Tuesday, the new balance of power in both the House and the Senate are up for grabs.
According to the prediction site Intrade.com, the chances of a Republican sweep of the House are about 92%, while Republican chances of gaining control of the Senate are approximately 30%.