Trade FOMC Minutes – Follow The Reaction – Get Out Today!

August 26, 2008

Yesterday, the market took a nasty tumble. In reality, it just gave back the big gain from last Friday. The market is searching for direction and it is unlikely to find it during quiet holiday trading.

Monday, I mentioned that interest rates and earnings (two key market drivers) are “known” for the time being. That means the market lacks a catalyst. All of the other tidbits of information are relatively insignificant. Consumer confidence was better than expected and housing data continues to look bleak. Analysts are dissecting the housing numbers 50 different ways to try and find some signs of improvement. Personally, I feel we are at least a year a way from seeing that.

Tomorrow, we will get durable goods orders. Car sales have been horrible and airlines are grounding planes. These two factors will weigh on the number.

Oil inventories have been building, but energy prices are stable. Hurricane Gustav and the Russia/Georgia conflict will keep prices elevated.

This afternoon, the FOMC minutes will be released. The Fed has been vocal and I am not expecting any surprises. Last week, Ben Bernanke said that inflation is waning and signs of economic/financial deterioration loom. The Fed wants to maintain the current rate as long as possible.

The early momentum points higher today. Europe was mixed and Asia was weak. Decent results from yesterday’s Freddie Mac/Fannie Mae auction are supporting today’s rally. Investors have demonstrated a willingness to finance a struggling mortgage industry.

It is likely that the market will continue to grind higher today. The A/D is a positive 2:1. Watch for the market’s reaction to the FOMC minutes at 2:00 pm ET. Have a strong stock and a weak stock selected ahead of time. Once the market reacts, use the appropriate stock and ride the momentum. Which ever way the market moves, it is likely to continue in that direction. Make sure to exit the position today. Nice little short-term trades are one way to make money in this market. The overnight risk is too great to take large positions. The moves are random and you don’t know what piece of information the market might latch onto.

Keep positions small and spend most of your time on research. Better trading conditions are only a couple of weeks away.
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August 25, 2008

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