This Is How I Am Preparing for the Fed Interest Rate Decision
Wednesday's news will create a major shift in the character of the market action — and good buying opportunities. Here's my game plan and how I'm positioning ahead of the event.
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It is a near certainty that the Fed will announce an interest-rate cut on Wednesday at 2:00 p.m. ET. Currently, the market believes there's a 63% chance of a half-point cut and 37% of a quarter-point. Market participants have been expecting this news for many months and were wrongfully optimistic, although it didn’t have any major negative market impact in the past year.
I have no idea how the market will react to the news Wednesday, but I’m pretty sure there will be increased volatility and probably whipsaw action as Jerome Powell talks about what comes next at his press conference. I don’t try to predict the market reaction to news like this. I try to trade the volatility that is produced by the news.
My Trading Game Plan
My current game plan has been to reduce long positions and raise cash. The S&P 500 is now higher for the seventh straight day, so there are some good opportunities to sell into strength, but when there is strong momentum like we are seeing now, there is always concern that you are selling early and will be sitting on the sidelines as the market runs even higher.
Trying to time a short-term top is very difficult, and I’m not going to try it. I’m just focused on the fact that there will be a major news catalyst that will shake things up.
The key to positioning right now is to deal with the fear of missing out. The bullish scenario here is obvious. The Fed is finally giving the market what it wants, and there should be great celebration. The problem is that the market knows this is coming and has been anticipating it for a very long time.
Will news of a much-anticipated rate cut attract a crowd of new buyers and send the market straight up? Maybe, but I’m willing to bet that the reaction to the news will create some very good buying opportunities and provide interesting technical development. It may not happen right away, but this news is going to create a major shift in the character of the market action, and I’ll be happy to adjust my portfolio to try to capture the new themes that emerge.
After some sales I made Tuesday morning, my cash position in managed accounts is averaging around 43%. That is the highest of the year, but it puts me in position to be very aggressive after the Fed news is out of the way.
I will share my shopping lists again later this week and highlight names I’m stalking for entry points. Right now, I’m doing no major buying.
At the time of publication, Rev Shark had no positions in any securities mentioned.
