FOMC Wed – Fed Could Pave the Way For Dec Rate Hike – Market Won’t Like It

September 19, 2016
Author: Peter Stolcers, Founder of OneOption

Posted 9:30 AM ET - We are seeing better volume and increased volatility since Labor Day. The wild swings each day indicate that buyers and sellers are active. Quadruple witching and the upcoming FOMC meeting this Wednesday are fueling the moves. The Fed will not hike rates on Wednesday. Labor conditions are soft and they don't have the data they need to justify a move. They could pave the way for a December rate hike and hawkish rhetoric would spark selling. In general, FOMC meetings the last couple of years have been market friendly. I am going to wait for the reaction and then trade accordingly. September is a weak month and the 100-day moving average is in striking distance. If that level fails easily, we could test the 200-day moving average. I'm not looking for a big decline and I believe that SPY $206 is as low as we will get. Donald Trump is edging higher in the polls and that increases uncertainty. It's not that his economic policies are bad; the market just doesn't know how effective he will be. On the other hand, Hillary is a known commodity. Global credit conditions are fairly stable and as long as credit risk remains low we won't see sustained selling. Any dip down to the 200-day moving average will be a buying opportunity. Any rally to the all-time high will be a selling opportunity. Earnings were fair and stocks are priced for good news. There is room for profit-taking. Interest rates are near historic lows and a lack of attractive investment alternatives will keep a bid to the market. I believe we will chop around the rest of the year and there could be some nice swings. The market will constantly be looking towards the next event. Once this FOMC meeting is over, the November meeting will be in focus. Then the market will be waiting for the election results and once that passes it will look towards the December FOMC meeting. The choppy overnight price action is very difficult to swing trade. That is why we are focusing on day trades. In the last week the market has been able to make sustained intraday moves. Once the momentum is set, stocks continue to move in that direction. Use the first hour range as your guide. If we are above the high, trade from the long side. If we are below the first hour low, focus on the short side. Stocks will start the week on a positive note. Up opens are a little more difficult to trade. I have been finding better opportunities on the long side than I have on the short side. All boats rise with the tide and many stocks will rally this morning. Some stocks will look great early in the day and they will give up their gains. It is important to be patient this morning. The best stocks will reveal their strength during the first hour of trading and you'll also be able to gauge the strength of the market rally. I will be very patient during the first hour and I will trade from the long side. I will identify relative strength and if the market holds the early gains I will start entering bullish day trades. The action should be pretty good today, but it will slow down Tuesday and Wednesday. Focus on bullish day trades today. SPY $215.50 is resistance and SPY $212 is support. If we close below $212 (unlikely), buy some puts and hold them overnight. . . image

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