Posted by Pete Stolcers on March 15
Posted 9:00 AM ET – Yesterday the market retreated ahead of a likely interest rate hike. We saw some early position squaring and a rally back above SPY $237. Oil futures are up this morning and the market will erase Tuesday’s losses on the opening bell. I consider this to be “noise” and the real action will start later today.
Analysts are pricing in a quarter-point rate hike and the rhetoric will set the timetable for the next move. The FOMC will not want to spook investors after raising rates twice in the last three months. Consequently, the statement should be benign. The market will like this and we should see a rally above SPY $238.
It has been typical for the market to decline ahead of the FOMC statement and to rally afterwards. If investors were worried about higher interest rates they would have taken profits after the strong ADP report last week. That number guaranteed a rate hike today. Stocks rallied after the ADP report and the market is comfortable with higher rates since economic conditions (domestic and global) are improving.
Once oil finds support energy stocks will regain their footing and the market will challenge the all-time high. Inventory numbers will be released this morning – keep an eye on the reaction. Low oil prices have benefits and consequences so I consider this to be a market neutral event.
Swing traders should still have some calls on since we closed above SPY $237 Tuesday. Add to positions if the SPY trades above $238 and add to positions if we close above that level. If the reaction to the FOMC statement is negative and we close below SPY $237, exit your call positions. The market trend still points higher and I would not buy puts. We need to see technical breakdowns before we get short and that process takes a time to form. Consequently, any pullback will eventually present a buying opportunity.
Day traders should be very passive this morning. Trading volumes will drop off and the action will be very choppy. Use SPY $237 and $238 as your guide today.
Quadruple witching is this Friday and once the FOMC direction is set we should see continuation for the rest of the week.
I believe the market is ready for this rate hike and we will see a relief rally. I don’t like to gamble so I’m going to wait for the reaction.
This is the calm before the storm. Trading activity will be brisk the rest of the week.
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