Here’s How To Trade the FOMC Reaction Today!

Posted 9:30 AM ET - The FOMC statement will be released two hours before the close today. No one is expecting a rate hike, but hawkish comments could pave the way for a move in December. If this happens the market will quickly test the 100-day moving average. I will buy puts today if the market closes below SPY $212. In that event, we are likely to challenge SPY $206 (200-day MA) in the next couple of weeks. This is the most likely scenario. September is historically a weak month and Asset Managers are cautious. Donald Trump is edging closer in the polls and that also adds uncertainty. From a trading standpoint, this is the best outcome. We need a nice drop to bring the volume back into the market. I'm not too worried about catching this move or about milking everything I can out of the drop. Central banks are printing money like mad and credit concerns are low. Market declines are sharp and brief and the possibility of a bounce makes shorting very risky. A nice decline will set up a fantastic buying opportunity and that is the move that I will trade aggressively once I see a capitulation low. If the FOMC cites tenuous labor conditions and the tone is dovish, the market will rally on the news. We could challenge the all-time high, but the upside is fairly limited. Traders will be waiting for the next event and the action will slow down dramatically. First we will wait for the November FOMC, then the election results and then the December FOMC meeting. A “wait and see” environment is not good for trading. The price action this morning will be flat. We are likely to drift higher and stall. When buyers are not able to rally the market we will give back some of the gains. Try not to trade actively this morning. Once the comments are out, the action will be brisk. I typically like to wait at least 10 minutes so that I get a sense of direction. There are often head fake moves right after the statement and the action needs to settle down. If the market is selling off, I will short the S&P futures. I prefer this to shorting stocks because I can quickly exit if the market bounces. Once I have a profit in my futures position I placed my stop at my entry price. As the position becomes profitable I trail my stop to lock in profits. If the market rallies on the news, I will buy individual stocks. In the chat room we have been able to find excellent trades with relative strength. The long side has had much better moves and these strong stocks will help me ride out some of the choppy moves after the FOMC statement. I am not as nervous trading from the long side when I am in the right stocks. Use SPY $212 and $215 as your guide today. If we are below $212, favor the short side. If we are above $215, favor the long side. If we get sustained momentum in either the direction right into the close, consider holding some overnight positions. Take the free trial and watch us trade the FOMC Statement in the chat room. . .

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