Fade the Fed or Buy the Fed?

Gap-down is on the way. Let's navigate it.

Technical Edge — 

• NYSE Breadth: 79.9% Upside Volume 

• NASDAQ Breadth: 80% Upside Volume 

• VIX: ~$32

I like to say, “The only day harder than Fed days are the day after Fed days.” 

Sometimes, Fed days can be quite simple. If we barrel higher into them, they can become “sell the news” events. If the markets tumble lower, they become “buy the news” events. 

The S&P came into yesterday decisively bearish and the market was busy discounting the higher 75 basis point hike. A rally was not surprising at all, as outlined in yesterday’s Game Plan. 

Now though, it’s tricky. What does the market actually want to do? 

We saw something similar on May 4 — a nice post-Fed rally, then a 3-day, 333 point loss in the S&P. 

Game Plan — S&P 500 (ES and SPY), XOM, MCK, AR, UUP

There are some individual names below, but we are still in a VIX $30+ tape. That means, no playing hero!

If the markets turn higher, some of these relative strength leaders could see a nice move. But if the markets don’t turn higher, do not get stuck in these stocks and saddled with unnecessary losses. It’s 8 a.m. and I have no idea what the market will be doing in three hours. 

When in doubt, stay out — but keep these names on your screen. 

S&P 500 — ES

You will notice something by looking at the chart above, which is that the ES did not close above 3807 yesterday. 

It had a nice buy-stop run to the upside, but the ES couldn’t close above 3807. We were very adamant about that needing to happen for the bulls. In the O/N session, the ES ran the 3708 stops on the downside and we’re seeing a small bounce.