The Safest Way to Prepare for the Fed
S&P 500 Index Daily Chart
Monday was a good session for the S&P 500 as it recovered all of Friday’s losses and then some on its way to a +1.4% gain.
As expected, the market is trading sideways ahead of the Fed’s interest rate policy announcement on Wednesday, and anyone overreacting to these daily gyrations is having a tough time. The catalyst for the next big move comes Wednesday afternoon. Until then, everything else is random noise.
The only thing that would interest me over the next 48 hours is if the selling or buying gets carried away ahead of the rate announcement and that’s only because it skews the risk/reward in the other direction. The higher (or lower) we go ahead of time, the less room there is to keep going higher (or lower), and conversely, there is a lot more free space to reverse and go the other direction if the news disappoints (or beats expectations).
I wasn’t expecting much and Monday’s gains erasing Friday’s losses confirms that the direction is sideways, not up or down.
As I’ve written many times since the October lows, I like this market and think the odds of a continuation higher is the most likely outcome. The offset is there is more risk to the downside if anything goes wrong.
Rather than put myself in a position where I could get run over by a freight train Wednesday afternoon if I was wrong, I’m happy being a little late to the party to make sure I get on the right side of this trade.
Until Wednesday afternoon, I’m mostly just watching and waiting. Once the next big directional move reveals itself, I’m grabbing on and enjoying the ride.
