How smart money is trading the Fed meeting

Free After-Hours Analysis: 

The S&P 500 finished Tuesday’s session off a modest 0.2%. Not bad, considering the index was down nearly 1% in midday trade.

All eyes are on the Fed’s meeting. While there is near universal agreement the Fed will keep interest rates steady Wednesday afternoon, the crowd is far more interested in what they have to say about November’s meeting and beyond. Will they keep hinting at another rate hike this year? Will they mention the possibility of rate cuts next year? Those questions will drive the next waves of buying and selling.

That said, the Fed tries really hard not to spook the market, so we shouldn’t expect anything surprising. After a brief reflexive knee-jerk of volatility Wednesday afternoon, the market will quickly go back to what it was doing previously, which is consolidating the summer gains above 4,400 support.

Tuesday’s midday selling actually increases the odds of a decent finish on Wednesday afternoon. That’s because the market got rid of a bunch of weak-kneed owners, and once those people sell, their opinions don’t matter anymore.

As is typically the case, we can ignore the first 15-ish minutes after the Fed announcement because those knee-jerk swings often go in the wrong direction. But after 30-ish minutes, the market can’t hide its true intentions, and that’s when we have the green light to jump aboard the next trade.

I’m a buyer on Wednesday afternoon if the index trades well after the Fed statement. If prices fall, I’m still interested in buying, but I will wait for capitulation first. Maybe that happens Wednesday afternoon, or maybe we need one last puke-out Thursday. But no matter what, I am looking at this as a buying opportunity. The only difference is if I buy on Wednesday afternoon or wait until Thursday or Friday.

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