So today is the big day when we're supposed to expect some sort
of clarity from the FOMC about its plans for paring back its
per month bond-buying program. Or at least, that's what the
financial media would have us believe. The issue is ripe for
hyperbole, and the Internet is littered with articles from the
forex folks, the ETF folks, the options folks and the equities, um,
folks pumping up expectations that
is about to happen. I'm seeing terms like "rock the market,"
"seismic shift," and "critical decision," but it's really no
wonder. The flow of created-from-the-ether zero percent money has
been the mother's milk of this market for years now, and market
participants are extremely sensitive about what might happen when
the Fed takes this market off its meds.
Which brings us to the question of the day: How should you trade
the FOMC interest rate decision? It amuses me to no end that folks
seem to think they know what the market is going to do. One writer
implies in the title of an article that's getting a pretty high
page ranking this morning that she's going to give you a playbook
for the day, but spends the first 350 words saying nothing and then
asserting with some level of authority at the end that any talk of
tapering will send the market lower. Gee, thanks.
However, there are some good bits of insight out there.
Gary Gordon over at ETFExpert.com suggests
that investors look toward some of the less interest-rate-sensitive
defensive groups like consumer staples and medical devices should
The Bearded One choose to engage in the time-tested tradition of
vague Fed-speak. Meanwhile, Rob Hanna at Quantifiable Edges has
over the years on "Fed days."
The ultimate danger for any investor is in thinking that he or she
has it all figured out and can correctly predict the market's
response to a potential catalyst. There's a myriad of possible
combinations of outcomes, and positioning ahead of any event
(whether it be a Fed day or an earnings report or whatever) is
basically a gamble. Number one rule: Don't ever think that you're
smarter than the market. Just ask the folks who have been shorting
every uptick since January.
All we can do is be prepared to react as the action develops, and
it could take a couple of days before the dust settles, so there's
a big danger of getting whipsawed. What we do know right now is
that the broader trend that began in November is in place, that
important support levels held twice in the past couple of weeks,
and that the indices pushed past some short-term resistance
levelson Tuesday . The market needed a correction, and it got one,
but so far, the bears have yet to do any real damage.
That leaves my firm in the bulls' camp, and there are some names
out there that we like, including
ValueVision Media Inc
Renewable Energy Group Inc
), which we'll look to add to in the near term, but we suspect that
we'll be doing some hand-sitting as the day progresses. Ultimately,
though, we'll be keeping an eye on the 1,595 area in the
(INDEXSP:.INX). The sellers have some work to do before we get
there, but if that level is breached, we'll head quickly to the
View anyone who says they know how the market will react to any
piece of news with a healthy dose of skepticism. Don't think you're
smarter than the market. React; don't anticipate.
Bernanke May Have One More Fed Revolution Left Up