Reacting to the Fed | Trading MCD, AMD, More

So far, our plan for "simpler is better" is paying off.

Technical Edge

• NYSE Breadth: 65% Downside Volume 

• NASDAQ Breadth:  63% Downside Volume 

So not only was there no rate hike on Wednesday (which was in-line with expectations), the Fed’s tone was not surprisingly more hawkish; Nothing that implied a 50 basis point hike in March — like some had been saying — and a regular tapering of asset purchases. 

While the Fed is undecided on when to start reducing its balance sheet, Powell did say, “I think there’s quite a bit of room to raise interest rates without threatening the labor market.”

Of course, it’s now up to the market to decide how this is interpreted and it goes one of two ways. 

1. The Fed (approximately) stuck to its plan, did not become more hawkish overnight and will continue forward — What a relief! Buy the Dip!

2. The Fed did not fold in its staredown with the S&P 500 and become more dovish overnight — Crap! Keep selling stocks like it's Q4 2018!

Game Plan

The SPY is gapping up about 80 basis points on the open and you know how I feel about gap-ups during downtrends. 

We remain below the 200-day and in a downtrend, and while we can (and likely will) see a snap-back rally at some point, you must keep the current trend in mind. 

I cannot reiterate enough the positive results of “Keep It Simple.” 

I don’t care what anybody says: This is a tough tape to trade and if you have a dull edge, there’s no use trying to cut through it. More likely than not you’ll just get hurt. 

If the edge is there, take it. That has been the case with XOM and energy this week. It’s why we’re up at a time when so many traders are down. While it has limited us to just 1 to a handful of trades a day, we have our account moving in the right direction and more importantly, our mental capital is safe. 

Sometimes, less is more. 

S&P 500 Futures and SPY

SPY Daily

The SPY continues to build below last week’s low of ~$438. For the ES, that’s ~4381 and it too continues to build below it. 

We need to see the SPY reclaim this level and regain $440, then the 200-day. For the ES, that’s ~4400 and the 200-day. 

If the bulls can do that and clear the declining 10-day — keep in mind, this has been active resistance for both the SPY and ES — we could see a sizable short-covering rally take hold. 

However, that rally doesn’t start until we’re able to reclaim the above levels. 

On the downside, keep an eye on the 50-week moving average and the weekly VWAP measure. If we fade from this morning’s gap-up and fail to hold these levels, the $426 to $429 zone is back in play — which has been support the last two days. 

Below $426.36 and Monday’s low is on deck. 

Individual Stocks — AMD, MCD, XLE, Go-To List