Searching For Traction

Hey Market Pilots,

Once again, my rule of waiting until the day after the Federal Open Market Committee (FOMC) minutes release worked again. It was a little trickier this time as the market opened with a gap up the next morning and seemed as though all was going to be well. But the market proceeded to sell off hard for the first half of the day, then rally just as hard the second half of the day and close exactly where it opened.

What the heck?

Usually, if there is going to be a surprise move the day after FOMC, it’s typically just down. Otherwise, it’s a non-event and the market just moves along as it was. But this time we got a “V” pattern and it was pretty crazy (chart below).

In my previous newsletter, I wrote about my rule of waiting till the next day from the FOMC to have the market give its true reaction. This week sure didn’t disappoint except for the lack of strength on Friday. Once it was clear that the market had no interest in being strong on Friday, despite the turnaround move on Thursday, I decided the market was at risk of actually breaking lower this coming week and so I went to cash. 

It has been a very mixed week and a half since the market decided to run over the shorts after news came out about the proposed increase on capital gains taxes. But then that up move was stifled as traders anticipated the FOMC. And once that event was over and the market appeared as though it wanted to go a little higher, then it got crunched again by the end of the week.

At this point, I am expecting the market to pull back because we just can’t get any traction to the upside and price is at some extension levels. But do we go short? That is also a tough outlook since so many names out there are actually just chopping sideways. It has become a day trader’s market (or a very short-term trader’s market.) I am having to adapt to this environment, understanding that moves are lasting one to three days and then they are all given back.
The name of the game right now is to capture profits when we get them since there is not a trend.

Your Profit Pilot, TG.

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