FOMC Statement Will Break Us Out of the Range – Bullish Reaction Likely

Posted 9:30 AM ET - The market is trapped in a tight range between the 100-day moving average and the 200-day moving average. The FOMC statement this afternoon will break us out one way or the other. If we don't see a decent move after the release, trading will be very light for the next week. We saw some nervous jitters ahead of the FOMC this week. February's Unemployment Report was hot and some traders fear that the rhetoric will be more hawkish. I believe the Fed's comments will cite the risk of slowing economic conditions and the market will like that language. FOMC statements have generated a bullish reaction and this one should nudge us above SPY $202. Hawkish rhetoric would not be wise at this time given that the BOJ, PBOC and ECB recently eased. The Fed will remember the currency chaos they created in December when they went against the grain. I predict that the Fed will not hike rates before the election. Global economic conditions are slipping and central bank money printing is not stimulating economic activity. Central banks are out of bullets and the unintended consequences of negative interest rates will start to show up in a few months. The rally in commodities was mainly due to short covering. Macro-economic conditions have not changed. China is the largest consumer of commodities and their imports fell 14% last month and exports fell 25%. These stocks will present an excellent shorting opportunity. The other issue with this rally is that tech stocks have not led the charge. We could see a rotation out of cyclicals and into tech, but that rotation would simply keep the market afloat. It would not push us higher. There is a chance that tech stocks will not pick up the slack and that cyclicals will simply roll over. If that happens, we will break below the 100-day moving average and there will be an excellent shorting opportunity. If the SPY closes below $200 I will buy puts and I will be fairly aggressive. We have been day trading the first couple of hours and calling it a day. I went five for five Monday and five for five Tuesday. The opportunities are good, but short-lived. You have to be ready to take profits as soon as the move stalls and you won’t get any help from the market. There won't be much action this morning. I might do a trade or two, but my size will be small. We are in a news vacuum. The Fed's rhetoric will be unchanged and we could inch back above SPY $202. Unfortunately, I believe the action will be extremely light the next week. I will focus on day trading and I will use the first hour range as my guide. I am short a few stocks overnight and I am long a few puts. These stocks are weak and my overall exposure is very small. I will not add to overnight positions unless we trade below $200. If the market rallies, I might exit a few of my shorts, but I won't get long. I don't like the backdrop and I don't trust this rally. I am biding my time until the next shorting opportunity presents itself. Look for a slightly bullish reaction to the FOMC and a light week of trading ahead. . .

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