What is the Fed going to do on Thursday? That’s a real good question? It seems like everybody thinks we are going to see another 1/4 point rate increase. But the word on the Trading Floor at the Chicago Mercantile Exchange is that we may see a 1/2 point move. Either way, as traders and investors we need to be prepared for whatever they do. Keep in mind, as traders we can’t control what the market or the Fed for that matter will do. We can only control what we will do with our investment decisions. That really is the key to successful trading. If you can’t control what the market will do, you must control what you will do!
So let’s look at the two possible scenarios that are in front of us:
1) Fed raises 1/4 point: If Mr. Bernanke raises the rate only a 1/4 point as expected, we can expect more of the same. A 1/4 point rise in interest rates says that the Fed is still on inflation watch and I believe that means stocks will continue to sell off throughout the summer. Selling rallies to get short the stock indexes will be the best possibility to gain profits!
or
2) Fed raises 1/2 point: The Fed hasn’t moved interest rate 1/2 point in over 5 years. Will they start now? I’m not sure! But what I am sure about is this: If the Fed raises a 1/2 point, they will then make the comment that they are ready to pause and allow their interest rate hikes to take effect. Believe it or not this will be good for stocks. I think the knee jerk reaction will be to see the markets sell off first and then rally over the next few weeks. The key is the Fed statement! If they are done raising rate (even temporarily) we can then focus on earnings of U.S. companies, which I believe will be good. Stocks Rally!!!
Larry Levin
S&P Floor Trader
President Secrets of Traders.com
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