The TRUTH About Trading FOMC Days (Don't Make This Mistake)
In a Nutshell
Traders should avoid overleveraging before FOMC decisions and major earnings reports from Microsoft and Alphabet, instead staying in cash or taking minimal positions to survive volatility. The strategy is to wait until after the 2:30 PM press conference to identify oversold/overbought reversals, then close positions before earnings. Tomorrow's PCE inflation data, GDP report, and Intel/Amazon earnings create additional volatility risks that demand the same disciplined sizing approach.
These notes were generated by AI and may contain inaccuracies.
Today is Fed Day with the FOMC rate decision and FOMC press conference. Microsoft and Alphabet are also reporting earnings. This is a critical time to avoid overtrading and avoid overleveraging positions right before major economic reports and earnings announcements.
A live trading session was conducted to prepare beginners. SKHY emerged as one of the biggest market movers with great news for memory chip stocks following their earnings report. The earnings were released at 4:30 PM rather than 5:00 PM as initially anticipated. Following the earnings release, the stock showed a push, pullback, push pattern that led to a sharper rally.
At the market open, SKHY gapped up. Memory chip stocks have been recently weak, and the NASDAQ only celebrated the memory chip rally modestly, moving up about half of a percent. By extended hours, the market had not made new highs. Key resistance was identified at 725, with support being tested at the moving average. This support was broken, leading to a selloff. Markets have been oscillating between green and red.
The past three days saw markets in the green following a bounce from the lows of 700, which represents a major and critical support range for QQQ. The beautiful gap up indicates markets have range to begin selling off and derisking. If overall markets sell off and derisk, individual stocks will likely follow the same pattern.
Traders should not be scared of today's volatility but should position themselves appropriately. When facing one of the most volatile and anticipated days like FOMC rate decisions, positioning should be structured for success. Avoid getting shaken out by not buying so much that you become overexposed and overemotional. Being aware of whether you're buying too much before a major report or should stay in cash is essential.
A live stream is planned for approximately 2:00 PM Eastern time, going live about 10 minutes before. The market currently shows an 88.5% probability that the Federal Reserve will pause rates. A rate hike is not widely expected, especially following the previous PCE inflation reading, though CPI data presented a different picture. The high probability supports a rate pause expectation.
The press conference occurs 30 minutes after the rate decision at 2:30 PM, where Kevin Walsh, head of the Federal Reserve, will answer analyst questions. Market movements will depend on his statements. If he indicates the Fed is not interested in raising rates, markets will celebrate. However, any possibility of rate increases in November or December meetings would be considered too hawkish, likely causing markets to sell off and derisk.
Immediately after markets close, Microsoft and Alphabet will report earnings. As $2 trillion companies, their stock moves will impact the NASDAQ and S&P 500 indexes. When these indexes move, individual tech stocks will most likely move in tandem. Proper positioning is essential to avoid being shaken out by volatility.
While Fed Day presents exciting market reactions to various economic and earnings reports, overexposure leads to negative experiences. Position sizing should be monitored carefully. Taking advantage of opportunities is acceptable, but staying in cash until setups present themselves may be the better approach. The plan is to wait until after or during the press conference to identify huge overbought or oversold reversals. No trades will be taken leading up to the event, with positions closed shortly after to wait for Microsoft and Alphabet earnings reactions.
Tomorrow presents another significant trading day with Intel, Amazon, and SanDisk reporting earnings, which can create additional volatility. The PCE inflation report and GDP report are also scheduled. The PCE report represents the Federal Reserve's preferred inflation measure. The GDP report for Q3 will indicate whether the economy is entering a technical recession, defined as two consecutive negative GDP reports. Additional data includes initial claims, continuing claims, and retail sales.
Friday's schedule includes PMI data and a Fed member speaking engagement, with nothing too significant scheduled. Today and Thursday represent the major trading days of the week.
Position sizing should be watched carefully, and staying in cash should not be feared. Investors should be well-positioned to tolerate volatility without being shaken out of positions. The goal is to end the year on a positive note while maintaining appropriate risk management throughout volatile periods.
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