Let’s not mince words. This week, no matter how avid an investor you are, you’ll be better served giving your trading platform a break this week.
Just turn them all off!
Obviously your broker won’t tell you this — he wants that churn in your account — and your investment adviser likely isn’t honed in enough on the markets to know this in the first place.
This week is a monster week from a macro perspective this week as the Federal Open Market Committee (FOMC) either mumbles something hawkish (or as I’ve come to say it, “unleashes the Kraken,” or simply assumes the frightened turtle position once again by pushing a rate hike indefinitely into the future.
But getting too deeply into debating monetary policy at this point is bad for the soul and for the pocket, as in the end, investors’ reaction is more important than the FOMC statement itself.
Don’t Game the FOMC
How many “smart-money” investors have blown up in recent years correctly calling the monetary policy moves but completely leaning in the opposite direction of the price action?
Answer: More than we’d care to hear about. And really, considering how rarely people like to disclose such gaffes … probably more than we actually do hear about.
In short, the probabilities of big bets in the stock market aren’t in our favor — and that means we should observe from the sideline. Think lions hiding in the bush ready to pounce, but only on a good opportunity.
It’s been my observation that the stock market tends to shuffle sideways 70% to 80% of the time? If you didn’t know that, it’s hard to imagine you’d have guessed that given how 2015 has gone so far. But patience is the name of the game, and I can tell you that the most consistently performing hedge funds and traders that I speak to are, not coincidentally, the most patient ones.
A little perspective goes a long way. Note that the European Central Bank announced its quantitative easing program earlier this year, and the German Dax as a result is now up 24% year-to-date, while the S&P 500 — sans QE — is up a measly 0.8% or thereabouts. Therein lies the power and the magic of central planning (i.e., quantitative easing) on the part of central banks.
Just like I wouldn’t have wanted to have been wrong (short) European stocks this year, I also don’t want to make any major bets on this week’s FOMC outcome until I see price action confirm a better move — in either direction.
After this Wednesady’s FOMC statement, I believe you should watch financials for clues to the broader market, as banking stocks are especially exposed to moves in interest rates.
From a macro perspective, and directly tying into this week’s FOMC event, the U.S. dollar’s year-to-date rally is certainly not sustainable at this rate. Yahoo Finance’s Phil Pearlman on Twitter asked the poignant question, “When was last time $EURUSD was this far below its 200day sma?”
Again, a little perspective goes a long way, so before you get too cozy on that EURUSD short, take a look at the above chart.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
