Right now you can throw your p/e ratios out the window. Considering most stocks in the stock market in one way or another follow the general direction of the stock market its time to be very careful with your hard earned money.
I am not so concerned about the Fed this week as I cannot imagine anything but a dovish statement. But with this Fed, there is no certainty. If it were Bernanke or Greenspan you would have known long before now that they would flood the markets with liquidity to prevent catastrophe. But with this Fed, the thrive on creating uncertainty. Why is beyond this site’s expertise so I will not go there. But it’s a fact traders have to deal with.
My primary concern, however, is the UK vote on leaving the E.U. The odds keep getting closer and closer. What started out as a long shot at best is now only around 2/1. Also, every poll they take shows growing popularity for an exit. Perhaps our President needs to threaten them again before the vote:) (I in no way intend to express any political statements by saying this…It’s my attempt at humor only!) These days you need to be very clear about that.
So what do you do in a stock market that is hanging by a thread with the UK vote coming up? Be extremely careful however embrace that fact that uncertainty leads to opportunity. If there was no uncertainty there would be no chance to take advantage of it. So let’s try to develop a strategy for making money off of this.
My thought is we get a small relief rally in the stock market after the Fed comes up with a moderately dovish meeting. Then we get another substantial drop prior to the UK vote. Then when the UK decides to stay in the EU we get a monster rally. So I will be looking to trade these events based upon the above.
The stock market is at a point where it’s as oversold as it’s been for awhile. I plan on putting on a mean reversion trade today in the SPY using SSO. Most likely I will do it before the close today with a chance of trading shortly after the open depending on the $ADD readings. I may scale into the trade depending on how things look.
Then if we get the relief rally off the fed tomorrow I will not wear out my welcome take my profits and then wait for the next mean reversion trade off the UK Vote.
Let’s see how this strategy pans out:) Should be interesting, to say the least. But it is a strategy and to me it sounds reasonable!
If you wish to follow my trades you can follow them at @rickjswings. It’s my private twitter feed and is free.
Good Luck Today
RickJ’s Handicapping Picks