How did you do on today’s Fed day? Days like this can remind us why volatile conditions can either be very rewarding or very draining for your account. Let’s see what happened and where the dust settled:
On the intraday chart of the DIA, the Fed announcement (they cut .25 to 2.00%, as expected) came at 2:15 EST. Initially, the market surged higher on sharply higher volume. Then, traders changed their mind (they can do that, can’t they?) and then aggressively sold off the market into the close.
Newer traders who bought because they were told “Fed cuts are good for the market” were left confused by the swiftness and aggressiveness of the afternoon sell-off.
I make it a practice not to trade Fed days. In the past, I’ve had software freezes where the program literally shuts down because it can’t deal with all the rapid price changes. If you have a day-trading position on, you can imagine how stressful this situation can be.
I prefer to make smaller, more consistent gains rather than try to win big on what in essence is a random big luck of the draw. Even in this case, if you wanted to get short, the initial up-impulse may have triggered your stop-out of the position, and it would have been difficult to get short with a good fill on the downside. And there was no guarantee the downside would come as swiftly as it did. My guess is that most at-home traders who played this move did so on the long (buy) side.
Where does this leave the Dow now?
We’re still above key support, but odds now favor some sort of downward reaction (retracement) against the recent upward sloping trend channel (gray dotted line). Maybe somewhere around $126? Key support looks good at that price zone, but breaking beneath $125 (and especially $124) could set up a highly probable test of the $116 lows.
With the Fed out of the way, it may be time to get back to some normal conditions. Still trade with caution and learn from the lessons of today.