September 18, 2013
This is the most anticipated FOMC meeting of the year. Most analysts are projecting a $10 billion reduction in bond purchases as the Fed starts to taper. We could see a relief rally or selling on the news. This is a 50-50 proposition and I suggest staying on the sidelines until the dust settles tomorrow. Most of the dark clouds have parted. Janet Yellen is likely to become the next Fed Chairman. The US will not attack Syria and the Fed's intentions will be known today. Seasonal weakness is winding down and Asset Managers will bid more aggressively with each passing week. After today, the focus will quickly shift to the debt ceiling. We could see nervous trading as the rhetoric escalates. The “can” always gets kicked down the road at the last minute and any debt ceiling dip will be a buying opportunity. Global economic conditions continue to improve. The market will accept higher interest rates if accompanied by global growth. Corporations are lean and mean and any uptick in demand will go straight to the bottom line. Cash flows are at record levels and companies are using that money for M&A and buybacks. Both are bullish for the market. I am in cash and I will not risk my recent profits. The announcement today will generate two-sided price action. The press conference after the release could provide some fireworks. Given the recent exchange outages, I suggest watching from the sidelines. Tomorrow, the news will be digested and we will have clarity. If the market declines I will wait patiently for support. Once it is established I will aggressively buy calls. I don't believe we will challenge the 100-day moving average before buyers stepped in. If the Fed does not taper (5% chance) and the market rallies, I will short that move. They will taper sooner or later and a knee-jerk rally will quickly fade. The Fed usually gives the market what it wants and this scenario is very unlikely. Traders are prepared for tapering. If the market stages a relief rally after the news, I will scale into call positions. I want to make sure that the breakout to a new all-time high holds and I will be much more passive if this happens. Asset Managers don't like to chase stocks at an all-time high and rising interest rates will provide a headwind. Start lining up your bullish candidates. Look for stocks that have broken through horizontal resistance and are in a strong uptrend. If we get the dip, that breakout will be challenged and that will represent an excellent entry point. The long awaited FOMC meeting is at our doorstep and active trading is hours away. . .
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