As we inch closer to the latest FOMC meeting news breaking on FB and privacy concerns slammed the stock weighing on the broader market. The NASDAQ composite led the market decline closing lower by 1.8%. Small caps only finished the day down .98%. An interested anecdote to this market has been the ability of the VIX to remain relatively high. Traders pushed the VIX to a high of 21.87 yesterday, but it closed well off its high at 18.39. It has been awhile where we have seen the index remain above its 50 day moving average. Volume was lower across the board as Friday’s quad witching day helped distort the volume picture. However, the price decline on the broader markets does call attention to our need to have proper position sizes and stops. There is no need to play hero ball with this market.
The positives for the NASDAQ and the Russell 2000 were both indexes were able to find support at their 50-day moving averages. It will be important for these indexes to remain above these lines as they look to consolidate their recent move off the lows. We’d also like to see trading ranges tighten up here too. Tight closes as volume contracts above the 50-day moving average would be a welcome sign. Unfortunately we can only trade the market sitting in front of us and not the one we want. Keep a close eye on how price action evolves as we head into tomorrow’s FOMC rate decision.
A quick check in on probabilities of a rate hike and they are still at 100% for some sort of hike. The market is pricing in 18% odds of the FOMC hiking 50bps. This certainly is the most we have seen in quite some time. While the FOMC had indicated a slow and steady rise in rates a 50bps would certainly be a surprise move and one worth watching how the market reacts.
Keep a close eye on your stops and manage your risk in this environment. An open mind is needed and flawless execution of sound trading principles. It is not a magic formula, but one too hard for most to follow. Good luck in your trading!
