Playing The Fed Announcement

• December 11, 2001
• Dave Floyd

Another Fed Day.
It seems as though these meetings occur every other week.
By now they are beginning to become a bore, and finding good volatility-spike
setups after the announcement is becoming more difficult. As I have
mentioned on previous Fed Days, I will only play the volatility spike IF
the decision is unexpected, or the comments made regarding future policy come as a
surprise.

Yesterday’s slow grind to the downside has put
the market right back into vulnerable territory, as many technical levels are
once again being tested. It is tough to argue that the market is not
overbought, but as many TM contributors state: “What is overbought
can become even more overbought.” Nonetheless, the market is
vulnerable, so be prepared for some volatility if it breaks down.

So how am I going to play the Fed announcement?

1) If they
cut only a 1/4 point, I will do nothing, then simply trade the pullbacks/rallies which take place after.

2) If they do
nothing, I would seek out short positions immediately, provided the comments
which accompany the announcement don’t indicate that the economy has found the
much-hyped “bottom.”

3) A half-point cut also leaves me uncertain. As a result, I would repeat the actions
of #1.

I plan to continue my intraday setups off of
five-minute bars until volatility comes back in full force. If you are continuing
to trade off of one-minute bars, you are dramatically decreasing your edge.

Looking at some longer-term picks, I offer you
both some long and short ideas depending on your directional bias of the overall
market.

Long:

Abbot Laboratories
(
ABT |
Quote |
Chart |
News |
PowerRating) looks poised for higher ground above $56.

Autodesk
(
ADSK |
Quote |
Chart |
News |
PowerRating)
is similar in nature to ABT and looks good above $40.

On the short side:

Cryolife

(
CRY |
Quote |
Chart |
News |
PowerRating)

Enzon Inc.
(
ENZN |
Quote |
Chart |
News |
PowerRating)

El Paso Corp.
(
EPG |
Quote |
Chart |
News |
PowerRating)

As always, use protective stops.

Thought For The Week:

All the
fancy quote and execution systems are of little value without a sound trading
methodology and proper money management.

Key Technical Numbers:

As always, feel free to send me your comments and
questions. See you in TradersWire.

Dave