How Do You Play The Fed Announcement On Wednesday? Try This…
With a decision on interest rates
due Wednesday afternoon I thought it would be appropriate to discuss
my thoughts on how I like to handle fast markets that occur based on mid-day
news stories.
The announcement, which will most likely occur around 2:15 EST, could have an
immediate impact on the markets. The scenario that Wall Street seems to be most
expecting is a ¼ point cut in rates. Anything other than this, or comments by
the Fed which are interpreted as overly positive or negative, could send the
markets into a frenzy.
My preferred way to play this type of frenzy is to treat it as a 2nd
market opening. Whatever strategies or risk management techniques you might
employ at 9:30 a.m. can also be employed at 2:15 p.m. on Wednesday. For some of
you, this may mean that you’ll have two chances to play patterns such as Flip
Tops and Trap Doors. For others, who prefer to wait out the first 15-20 minutes
or so of trading each morning, you may also want to do so at Fed time.
Intermediate-term traders whose positions may be close to triggering stops will
want to pay extra close attention to their positions at 2:15 p.m. Make sure your
stop orders are ready to go in case the move is extremely quick and negative in
your stocks. Also make sure you are ready with your breakout buy orders in case
the release is construed as positive.
Normally, you will find that early afternoon trading ahead of a Fed announcement
is very subdued. This should give you a chance to review your
strategies/stops/triggers before the announcement is made, just as you would do
when preparing for the regular opening of trading.
The action of the market over the last few days is somewhat concerning, and
bears watching carefully. The Fed’s actions and subsequent comments on Wednesday
may go a long way in determining direction. We may already have entered a
consolidation/correction period that could be longer and deeper than any we’ve
seen since this rally began in March. On the other hand, positive response to
Fed action could breath new life into the market’s three-month old rally. A
little extra caution on both the long and short side is warranted until there is
a bit more clarity.
Good luck with your trading.
Until Wednesday,
Rob Hanna