Bid Will Gradually Grow In Coming Days – No FOMC Suprises

Posted 9:00 AM ET - The market has been compressing for the last week after breaking out to a new all-time high. Trading volume is declining and the market lacks a catalyst. Today's FOMC statement has kept a lid on the rally and stocks should grind higher in coming days. The Fed's intentions are clear. They plan to raise rates in December and they plan to reduce the balance sheet. Three rate hikes are expected in 2018 and 2019. There's not much they can say that will change the outlook. Janet Yellen could stay on as the chairman (bullish) and one of the hawkish voices (Richard Fisher) is retiring. This statement should be a non-event. The market has become numb to North Korea's missile testing. Harsh rhetoric from Trump did not phase the market yesterday. Global credit conditions are stable. Earnings have been excellent and guidance has been extremely strong. Companies are lean and mean and top line growth is going right down to the bottom line. Economic releases have been consistent with moderate growth. Stocks have been able to inch higher during a seasonally weak period. I mention all of this to drive home a point. There are not any "drivers" in either direction. The path of least resistance points higher. We can expect a very gradual rally and now that the FOMC statement will be behind us the bid will grow. The only potential catalyst is a tax deal. Even rumors of a deal could spark buying. This news could come in the next few weeks or it could take months. Swing traders should stay long calls and they should use SPY $248 as a stop on a closing basis. Buy November calls to reduce your exposure to time decay. I also suggest selling some out of the money bullish put spreads to reduce your exposure to time decay. I believe that if all of the variables I mentioned remain constant (likely) the SPY could rally to $260 by Thanksgiving. A tax deal would certainly get us to $270. Day traders should keep their powder dry today. A flat opening and tight daily ranges the last few days spell trouble. We will be "dead till the Fed". After the announcement wait for 15 minutes and follow the momentum. There is not much of a surprise component to the statement today and I'm not expecting a big reaction. Stay long and use SPY $248 as your stop on a closing basis. . .

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