Rate Decision and Forecasts

Yesterdays light choppy and somewhat confusing price action across the indexes was not too surprising as we wait for the FOMC interest rate decision and forecasts.  As I suggest was possible the gap up yesterday in the Dow produced a pop and drop pattern and this morning is set up very much the same the way.  After the opening rush, light choppy price action is likely to resume until the FOMC decision which normally produces very fast price swings that even challenge every experienced intraday traders.

Up-trends are still bullish and other than the Dow; indexes continue to hold above key supports.  Unfortunately, ahead of such big potential market-moving news adding risk gives up your edge and becomes a straight up gamble for swing traders.  As a result, I have reduced my holdings and plan stay that way until my edge returns.  Plan your risk carefully because anything is possible.

On the Calendar

A big day on the Wednesday Economic Calendar gets started early with the Mortgage Applications report at 7:00 AM Eastern.  The New Home Sales report at 10:00 AM Eastern expects a 630K reading in August little changed from the 627K in July.  At 10:00 AM is the Investor Confidence Index report followed by the Petroleum Status Report at 10:30 AM.  Then at 2:00 PM Eastern is FOMC Announcement and Forecasts with the Fed Chair Press Conference starting at 2:30 PM.

On the Earnings Calendar, we have ten companies stepping up to report results.  Of all the reports today the likely most notable will be after the close when BBBY reports.  If you’re not already in the good habit of checking earnings report against current holding now would be a good time to start.  Fourth quarter earnings season is just a few weeks away.

Action Plan

Another day of challenging price action with the DIA selling off while the QQQ worked to go in the opposite direction.  The SPY and the IWM took another day of rest choosing to chop sideways on lower than average volume.  Expect more light choppy price action as the market waits for the FOMC decision on rates as well as the Forecast.  After the announcement expects some very wild price action that could include several reversal signals over the following hours.  Choose your risk carefully.

Futures are once again pointing to a gap up open.  Don’t get caught up in the hype chasing the open especially ahead of a big news day.  Yesterday the Dow produced a pop and drop pattern as I suggested was possible, and this morning the same possibility exists.  I’m going into the day, light in my account and plan to stay that way because adding positions ahead of the FOMC is giving away all my edge as a swing trader.  As one of our former presidents once said, it wouldn’t be prudent.

Trade Wisely,

Doug