Here’s How To Trade the FOMC Statement Today

November 2, 2016
Author: Peter Stolcers, Founder of OneOption

Posted 9:30 AM ET - I am short on time this morning so I decided to post my chat room comments. I will be giving chat room members the play-by-play after the reaction. Pete: We will get an early move and then dead till the Fed. The key today is not to get trapped in trades before the Fed. You do not want to hang on to marginal trades that go against you ahead of the release. Then you are taking unnecessary risk 11-02 07:52 Pete: The Fed will signal a Dec rate hike. Some of that is baked in after the decline yesterday. We are below support at $212 and that is bearish 11-02 07:52 Pete: I have a sneaky suspicion that the market will hold up well and perhaps even rally on the news 11-02 07:53 Pete: The FOMC will soften the blow by targeting the back half of 2017 for the next rate hike and the market will like that. FOMC also wants to stay dovish during election. Trump represents uncertainty and if elected the FOMC does not want to paint itself into a corner if market falls apart. These are good reasons for the tone to be less hawkish than priced in. Bears are short below support and they can be shaken out on a rally. Nov and Dec are typically strong months A rally would put us back in the range where there seems to be a balance of buyers and sellers This is not the move I want, but it is very possible 11-02 07:56 Pete: If the reaction is negative, the market will drop to the 200-day MA. That is only about 25 S&P points away so the downside is contained Option prems have increased into the meeting and that will also make it harder to make money buying puts If we get a negative reaction to the FOMC I will short stocks. I might short futures as well. However, I will be out before the close 11-02 07:58 Pete: If there is follow thru selling Thurs I will stick to day trading and I will increase my size to 1.5 times normal i want to catch the decline, but I do not want to take overnight risk Once support is established, a good buying opportunity will set up. Then we might buy some calls and sell some put spreads 11-02 08:00 Pete: The rebound from the 200-day MA would be the best set up we have seen in the last 6 months 11-02 08:00 Pete: If the reaction to the FOMC is bullish, we will day trade from the long side and it will be business as usual The market will float back into the range and we might have an opportunity to hold a bullish swing or two overnight. We will wait for 15 min after the FOMC and then follow the momentum . . image

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