{"id":235244,"date":"2025-11-26T12:59:11","date_gmt":"2025-11-26T17:59:11","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=235244"},"modified":"2025-11-26T13:12:40","modified_gmt":"2025-11-26T18:12:40","slug":"dont-short-a-dull-tape-fed-funds-edition","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/dont-short-a-dull-tape-fed-funds-edition\/","title":{"rendered":"Don\u2019t Short a Dull Tape \u2013Fed Funds Edition"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">One of the classic adages that guides my thinking is \u201cdon\u2019t short a dull tape.\u201d&nbsp; The construction is anachronistic \u2013 there hasn\u2019t been a ticker tape in decades \u2013 but the logic is not.&nbsp; Periods of low volume imply lower liquidity, and lower liquidity implies that intraday moves can get extended.&nbsp; We\u2019re seeing this in action this week, and it could easily persist on Friday\u2019s half-day\/month-end.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">There is a solid rationale for the recent enthusiasm that is taking advantage of the pre-holiday relative lull.&nbsp; <a href=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/john-williams-changes-the-tune\/\">As we noted last week<\/a>, the market\u2019s mindset flipped almost instantly on Friday morning after comments by New York Fed President Williams that he favored a 25-basis point cut in the Fed Funds target rate at the upcoming December 10<sup>th<\/sup> meeting.&nbsp; We saw an immediate near doubling in the <a href=\"https:\/\/forecasttrader.interactivebrokers.com\/eventtrader\/#\/market-details?id=791099755%7C20251210%7C4%7C\">market\u2019s expectations<\/a> for a cut, and those odds have continued to improve in the ensuing days.&nbsp; Both the <a href=\"https:\/\/www.cmegroup.com\/markets\/interest-rates\/cme-fedwatch-tool.html\">CME FedWatch<\/a> and <a href=\"https:\/\/forecasttrader.interactivebrokers.com\/eventtrader\/#\/market-details?id=791099755%7C20251210%7C4%7CDecember%202025\">ForecastEx<\/a> currently show a roughly 82% likelihood for a cut as I type this.&nbsp; This is up from roughly 30% just last week.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-forecastex-yes-price-for-lower-25bps-in-december\"><strong><em>ForecastEx \u201cYes\u201d Price for \u201cLower 25bps\u201d in December<\/em><\/strong><\/h3>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" width=\"884\" height=\"476\" data-src=\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/image-41.png\" alt=\"ForecastEx \u201cYes\u201d Price for \u201cLower 25bps\u201d in December\" class=\"wp-image-235247 lazyload\" data-srcset=\"https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/image-41.png 884w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/image-41-700x377.png 700w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/image-41-300x162.png 300w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/image-41-768x414.png 768w\" data-sizes=\"(max-width: 884px) 100vw, 884px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 884px; aspect-ratio: 884\/476;\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Source: <\/em><a href=\"https:\/\/forecasttrader.interactivebrokers.com\/eventtrader\/#\/market-details?id=791099755%7C20251210%7C4%7CDecember%202025&amp;detail=contract_details\"><em>ForecastEx<\/em><\/a><em><\/em><\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-cme-fedwatch-probabilities-for-today-yesterday-1-week-and-1-month-ago\"><strong><em>CME FedWatch Probabilities for Today, Yesterday, 1-Week, and 1-Month Ago<\/em><\/strong><\/h3>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" width=\"875\" height=\"518\" data-src=\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/image-40.png\" alt=\"CME FedWatch Probabilities for Today, Yesterday, 1-Week, and 1-Month Ago\" class=\"wp-image-235246 lazyload\" data-srcset=\"https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/image-40.png 875w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/image-40-700x414.png 700w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/image-40-300x178.png 300w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/image-40-768x455.png 768w\" data-sizes=\"(max-width: 875px) 100vw, 875px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 875px; aspect-ratio: 875\/518;\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Source: <\/em><a href=\"https:\/\/www.cmegroup.com\/markets\/interest-rates\/cme-fedwatch-tool.html\"><em>CME<\/em><\/a><em><\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Stocks love the prospect of interest rate cuts.&nbsp; They are catnip to liquidity-loving traders.&nbsp; Heck, there is a reason for the more powerful adage \u201cdon\u2019t fight the Fed.\u201d&nbsp; Liquidity is the lifeblood of financial markets, and if the Fed is planning to make liquidity either more plentiful or cheaper, there is little reason to stand in the way of that activity.&nbsp; The following chart shows the relationship between Fed Funds and ES (S&amp;P 500 Mini) futures since the last FOMC meeting \u2013 which, not coincidentally, was the last closing high for the S&amp;P 500 (SPX) index:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-1-month-december-fed-funds-futures-zq-red-green-30-minute-candles-s-amp-p-500-december-mini-futures-es-blue-line\"><strong><em>1-Month, December Fed Funds Futures (ZQ, red\/green 30-minute candles), S&amp;P 500 December Mini Futures (ES, blue line)<\/em><\/strong><\/h3>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" width=\"860\" height=\"510\" data-src=\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/image-42.png\" alt=\"1-Month, December Fed Funds Futures (ZQ, red\/green 30-minute candles), S&amp;P 500 December Mini Futures (ES, blue line)\" class=\"wp-image-235248 lazyload\" data-srcset=\"https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/image-42.png 860w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/image-42-700x415.png 700w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/image-42-300x178.png 300w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/image-42-768x455.png 768w\" data-sizes=\"(max-width: 860px) 100vw, 860px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 860px; aspect-ratio: 860\/510;\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Source: Interactive Brokers<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">When we look at the chart above, the influence of Fed Funds on SPX becomes apparent.&nbsp; Yet as last Thursday\u2019s huge reversal was occurring, <a href=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/stocks\/nvda-to-the-rescue-but-bitcoin-spoils-the-fun\/\">we noted<\/a> the short-term relationship between NQ (Nasdaq 100 Mini) futures and bitcoin, <a href=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/stocks\/nvda-to-the-rescue-but-bitcoin-spoils-the-fun\/\">and blamed a slide in bitcoin<\/a> for turning enthusiasm for Nvidia (NVDA) earnings into a substantial decline.&nbsp; Various factors can influence stocks at any given time, and the recent precarious nature of the cryptocurrency markets amidst a sustained decline in those assets was enough to flip the mood among a wide group of active traders.&nbsp; A big part of bitcoin\u2019s recent uptrend was powered by the popularity of bitcoin ETFs in the wake of a new crypto-friendly administration.&nbsp; But that also meant that there was a convergence between those who traded and invested in cryptocurrencies and stocks.&nbsp; <a href=\"https:\/\/www.cnn.com\/2025\/11\/24\/business\/why-the-crypto-market-is-crashing\">As I put it recently<\/a>,<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>The bottom line is, bitcoin is for normies now.&nbsp; As a result, the normies are going to view it as another speculative holding in their portfolio \u2026 it\u2019s going to be treated like a volatile mainstream investment.<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But after that brief flirtation with using bitcoin as a \u201clead\u201d for stocks, we\u2019re back to the more meaningful relationship between rates and stocks.&nbsp; We can certainly question whether 25 basis points is really worth adding trillions of dollars of market capitalization to the entire stock market, but that would be nitpicky.&nbsp; This is less about the effect of short-term rates on the bottom lines of index constituents than the willingness of investors to expand multiples (paying higher prices for a given level of earnings) when rates decline.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Back to the original premise of \u201cdon\u2019t short a dull tape\u201d \u2013 when volumes and trader attention decline, so does liquidity.&nbsp; Spreads widen and posted sizes shrink, meaning that less volume is required to get prices moving.&nbsp; Given the path of interest rate probabilities and its tight relationship with major indices, it is quite possible for sizeable rallies to take hold on skimpy volume.&nbsp; The recent average daily volume on the consolidated US tape is around 19 million shares.&nbsp; Monday\u2019s sharp advance occurred on roughly that level of volume.&nbsp; We normally want to see major moves be bolstered by higher-than-average volume, which was the case last Friday.&nbsp; Volumes were nearly 11% lighter yesterday, and the pace is even slower today.&nbsp; <a href=\"https:\/\/www.interactivebrokers.com\/campus\/podcasts\/ibkr-podcasts\/will-the-fed-serve-up-a-cut\/\">Yesterday we noted<\/a> that Friday\u2019s half-day coincides with month-end, meaning that an institution that wants to do a bit of window dressing might find it especially easy under those conditions.&nbsp; We may be getting overbought and overextended on a short-term basis, but it is difficult to stand in the way of a concerted advance when volumes are light.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Happy Thanksgiving to those who celebrate.&nbsp; Happy Thursday to everyone else.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>One of the classic adages that guides my thinking is \u201cdon\u2019t short a dull tape.\u201d  The construction is anachronistic \u2013 there hasn\u2019t been a ticker tape in decades \u2013 but the logic is not.  Periods of low volume imply lower liquidity, and lower liquidity implies that intraday moves can get extended.  We\u2019re seeing this in action this week, and it could easily persist on Friday\u2019s half-day\/month-end.<\/p>\n","protected":false},"author":4,"featured_media":235255,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"_acf_changed":true,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[14700,18,6,8,9,26,3],"tags":[],"contributors-categories":[13576],"class_list":["post-235244","post","type-post","status-publish","format-standard","has-post-thumbnail","category-ibkr-market-insights","category-macro","category-north-america","category-region","category-securities","category-text-articles","category-traders-insight","contributors-categories-interactive-brokers"],"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v28.2) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Don\u2019t Short a Dull Tape \u2013Fed Funds Edition<\/title>\n<meta name=\"description\" content=\"One of the classic adages that guides my thinking is \u201cdon\u2019t short a dull tape.\u201d The construction is anachronistic \u2013 there hasn\u2019t been a ticker...\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.interactivebrokers.com\/campus\/wp-json\/wp\/v2\/posts\/235244\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Don\u2019t Short a Dull Tape \u2013Fed Funds Edition | IBKR Campus US\" \/>\n<meta property=\"og:description\" content=\"One of the classic adages that guides my thinking is \u201cdon\u2019t short a dull tape.\u201d The construction is anachronistic \u2013 there hasn\u2019t been a ticker tape in decades \u2013 but the logic is not. Periods of low volume imply lower liquidity, and lower liquidity implies that intraday moves can get extended. We\u2019re seeing this in action this week, and it could easily persist on Friday\u2019s half-day\/month-end.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/dont-short-a-dull-tape-fed-funds-edition\/\" \/>\n<meta property=\"og:site_name\" content=\"IBKR Campus US\" \/>\n<meta property=\"article:published_time\" content=\"2025-11-26T17:59:11+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-11-26T18:12:40+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/11\/different-ideas-investing-featured-img.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1000\" \/>\n\t<meta property=\"og:image:height\" content=\"563\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Steve Sosnick\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta 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