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Typical Post-FOMC Noise

Despite what might have appeared to be an impressive or convincing reaction to the FOMC announcement yesterday, that intraday rip which took the broad market from red to green in the blink of a machine (HFT machines, that is), the near-term & longer-term technical picture has not changed. For as long as I can remember, I've harped on the fact that for the most part, there are three things that you can count on during FOMC announcement days:

  • A muted (mostly flat) market leading up the the announcement, which is typically released around 2pm ET.
  • Very sharp, nearly vertical rips and dips.
  • More often than not, the initial knee-jerk reaction is often faded with a nearly equal, if not greater, move in the opposite direction.
Post FOMC rips March 17th

Post FOMC rips March 17th

As these intraday charts above show (gray areas are pre & post-market trades, regular trading sessions in white), despite the post-FOMC pop, the major indices are trading at or below where they closed on Monday. The 60-minute charts below show that the markets are still at or below key resistance levels with bearish (negative) divergences still well intact.

 

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Mar 17, 2016 9:22am|Categories: Equity Market Analysis|Tags: , , , , , |5 Comments

5 Comments

  1. lee1 March 17, 2016 10:50 am at 10:50 am

    It is very frustrating this market as I fear going long here yet I fear shorting too as every dip is being bought up. I can only imagine the number of people throwing in the bear towel and going long here given how the upside seems to be the “easy” way to make money now. How long can this go on for? This feels like a new bull market as every dip is bought up and the market only goes higher yet the longer term charts (the dome of doom, etc) look pretty scary.

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    • Shambo March 17, 2016 11:03 am at 11:03 am

      When enough people think the market won’t go down, it will.

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      • rsotc March 17, 2016 11:07 am at 11:07 am

        So true.

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    • rsotc March 17, 2016 11:36 am at 11:36 am

      @lee1 I continue to believe that this will be a stock pickers market in the foreseeable future. Trying to make money trading “the market”, long or short is likely to continue to prove a difficult & as you said, frustrating task. My focus in 2016 has been & will continue to be trading the most bullish stocks & sectors long while also trading the most bearish stocks & sectors short. Sector rotation has been fairly rapid lately and both the long-side and short-side trades on the site this year, the vast majority of which have been successful, have hit there profit targets much quicker than normal.

      So far, 2016 has certainly been a “trader’s market” with tremendous opportunities on both the long & short side while the typical “buy & hold” investor has been taken for a wild ride, first with the big slide that kicked on on the first trading day of the year, followed by some choppy price action & then most recently this rip back up. However, that typical investor, as most mutual funds in recent years just aim to track the broad market, has gone exactly nowhere, with the S&P 500 trading today just about exactly where it finished 2015. Where as 2009-2015 was one of the best buy & hold markets in many years, I believe that 2016 & possible beyond will go down as period were proficient market timers & swing traders will vastly outperform the broad market.

      I realize that not everyone here has the time or experience to actively swing trade, especially both on the long & short side. One suggestion that I would make for those individuals would be to not try and force trading or try to keep up with all the trade ideas posted here. Rather keep things light (i.e. – fewer trades & above average cash balances) while waiting for the trade setups that mesh with their unique trading style, typical time frames and comfort level.

      Waiting patiently for the market or a sector to come to you before engaging it, long or short, allows one to strategic engage the market (or a stock or sector) when the risk of loss, if stopped out, is minimal compared with the gain potential, if correct. Waiting patiently on the sidelines also takes away a lot of the frustration of watching your account go back & forth with gains & losses when holding a lot of positions while the market grinds around in a trading range. Hit & run vs. buy (or short) and hold. How often a trader should “hit” or engage the market should depend on how much time & effort they are able to devote to trading or investing.

      One final thought: For those who do not have the time or inclination to actively trade, best to focus on the official trade ideas & market analysis that is posted on the front page of the site. The trading room is an excellent resource for both traders & investors alike but can be a bit overwhelming as too much market analysis & trade ideas can lead to “paralysis by analysis” from information overload.

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  2. lee1 March 17, 2016 11:44 am at 11:44 am

    Great post, I agree that for newer traders or ones who are busy, it would be best to simply focus on trades and sectors being flagged by Randy.
    I really appreciate the experience element behind traders such as Randy as it counts for a lot. I can get giddy about this market thinking it MUST go higher because it is very bullish now, but experience from traders like Randy and others helps temper such unbridled enthusiasm. When the market was low 1800s I was telling everyone that we would “obviously” see much lower and to sell stocks and now we are over 2000 I am thinking it it is time to go bull – so I am probably a good contrarian indicator. I appreciate this forum as some here have a lot of wise wisdom that can help some others stay out of trouble, both on the downside and on the upside.

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