The smart way to approach this week’s Fed meeting

Free After-Hours Analysis: 

The S&P 500 dropped three-quarters of a percent on Monday, but those losses pale in comparison to Friday’s towering +2.5% gains.

Two steps forward, one step back. As much as people love trying to pick tops by proclaiming every red day is the start of the next big crash, the simple truth is the market spends far more time going up than down. In reality, most red days are little more than filler between up days and odds are good Monday’s losses are nothing more than one of those filler days in the October rebound.

Now, everything could change Tuesday, but as long as we remain above 3,800, the latest rebound is alive and well. At this point, 4k is very much in play and we could be challenging this key level in a few days.

Of course, everyone is looking forward to Wednesday’s Fed meeting and the widely expected 0.75% rate hike. But since everyone has seen this hike coming for weeks, if not months, don’t expect Wednesday’s rate change to move markets. Instead, traders will be focused on what the Fed hints is coming next year.

By this point, most people have given up hope that rates will start coming down next year. But any guidance in how high rates might get in 2023 will go a long way to determining how optimistic or pessimistic investors will be in the final months of 2022.

Lucky for us, we are nimble traders, so we don’t need to be concerned about what’s coming in January, let alone later in 2023 or even 2024. We buy strength, we sell weakness, and we repeat as many times as the market allows us. Let other people worry about what will happen next year. Instead, trade and profit off of what is happening right in front of us.

Expect some volatility surrounding the Fed’s rate announcement, but this one will be less important than the ones that came before it, so expect a little less volatility than we got before. And has been the case for a while, this will trigger a multi-day directional move. Wait 30 minutes for the market to make up its mind, but once the next move starts, grab on and enjoy the ride.

I’m expecting the relief rally to continue, but I don’t mind being wrong if that means I get to make even more money shorting the next big selloff.

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