FOMC Reaction Could Go Either Way – Here Is How I Am Playing It

Posted 9:50 AM ET - Yesterday the SPY blew through the 100-day moving average and it never looked back. The buying was strong all day and most analysts believe that the phrase "considerable time" will remain in today's FOMC statement. Good news is priced in. If the reaction is positive, the market will be bumping up against the all-time high. I don't want to buy calls up here and this could be a blow-off rally that results in a reversal. If the reaction is negative, the Fed might have added a few new wrinkles. They might reference disinflation. Any market decline will test the 100-day moving average. That support should hold and it would present a call buying opportunity. My tactic the last two weeks has been to sell out of the money put credit spreads. I've been able to distance myself from the action and take advantage of time decay/volatility collapse. The second part of my strategy has been to day trade the S&P futures based on the one hour range. This strategy works well when the market establishes a direction and it follows through the rest of the day. This is exactly the price action we've seen and I've been able to take the “meat” out of most moves without taking overnight risk. Most analysts believe that the GOP will take back the Senate next Tuesday. This might be "goosing" the rally. There is a good chance that they will only have a one vote majority and that we will still have gridlock. This is not a great reason for the market to rally. The jobs numbers next week should be good. Initial jobless claims have been excellent in recent weeks. If the Fed keeps “considerable time” in its statement, strong employment numbers will be market friendly. Earnings season has been good. With interest rates near historic lows, equities are still the best game in town. Corporations are buying back shares at a record pace and that will keep a bid to the market. We also have seasonal strength working in our favor. My current strategy is working and I don't want to change it. If you are long calls, use the 100-day moving average on the SPY as your stop. I will not day trade the futures until the FOMC reaction has been established. That usually takes about 15 minutes and I will follow the momentum. I like the market into year-end and I am hoping for a pullback to the 100-day moving average. If we get it, I will buy calls. If the market rallies, I will buy back some of my put spreads to release margin and I will lock in profits. . .

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