The market is trading with a slight positive bias as we await the Federal Open Market Committee interest rate decision at 2 p.m. ET. Small-caps are leading, which is helping to push breadth up to 3450 gainers versus 2700 decliners. The new highs are piling up again, with over 400 stocks at 12-month highs versus just 33 at new lows. Biotechnology continues to lead, while FAANG names are trading mixed.
The most important thing to know about the Fed interest rate announcement is that it serves as a trigger event for computer algorithms. The programs have already worked out how they will react to the announcement. For example, if there is a selloff, then the likelihood is that a 'buy the dip' program will quickly fire.
There are many different strategies employed to try to capture some movement, but the most important thing to keep in mind is that the algorithms tend to kill the volatility quickly. When humans are driving the market, a strong response in one direction causes a strong response in the other direction. Volatility leads to more volatility.
These days, the computerized trading works to suppress volatility. Any big move tends to produce programs that quickly reverse it. When there is a dip, it is bought and the market returns to flat.
There is a positive bias to this action, so the rallies are not sold as quickly as the dips are bought. But, as we have seen the last couple of days, the market gravitates back to the flatline after it has a breakout move.
I'm staying focused on stock picking, and have a number of stocks cooperating -- such as Jupai Holdings Limited JP and Amicus Therapeutics, Inc (FOLD) . I've been a net seller into strength lately in order to protect some good gains, but will buy when I can find attractive action, like JP is seeing today.
At the time of publication, Rev Shark was long JP and FOLD, although positions may change at any time.