There are very few events out there that get the ENTIRE market to move.
And it’s only fair that you know those in advance and come prepared.
One such example is Federal Reserve meetings, or more specifically – Federal Open Market Committee meetings, a.k.a. FOMC.
These happen eight times a year and give away FED’s current feelings about the state of the economy and their plans regarding interest rates.
This last part is important – the market is extremely sensitive to even the smallest changes in FED’s rate, as it affects the cost of borrowing and, consequently, risk preferences of market participants.
The other “fun” fact is that these meetings occur mid-trading sessions.
If you’ve been heavily trading into one, unaware of what’s coming – you might be in for a rude awakening when all of your stops get hit on sudden volatility.
But if you come prepared – such days may bring great joy and reward.
Davis Martin always comes prepared, which is why yesterday’s FOMC meeting turned into a great learning experience for us.
Davis Mastering SPY Art
As you may be aware by now, Davis Martin is known for his sniper-like SPY trades.
He may sit on the sidelines for a while, waiting for a perfect trade, but when he sees one – he strikes!
And this is exactly what happened yesterday, right after the FOMC comments were out – more on that in a minute.
But first, some history digging: Davis has noticed one peculiar thing – on FOMC days the SPY, as well as the market’s most active movers, would often go in one direction… only to reverse shortly, and make a larger move in the other direction!
It’s that reversal and the move in the other direction that Davis is on the hunt for.
But you can’t base your trade on a historic observation alone – hence, he always wants the fundamental thesis to align and the setup to confirm his idea.
With that, back to FOMC – Fed signaled a likely rate hike in March of this year – a bearish event for the market, as it would cause an outflow of capital from equities and into high-yielding fixed-income assets.
As soon as the decision was announced, the SPY jerked higher – exactly the reaction Davis wanted to see if he were to place a bet on the “larger” move to the downside.
Now, he just needed the reversal to take place and a good chart setup for an entry.
As he often does, he used his signature 3 / 8 EMA crossover, combined with VWAP for an entry signal:
Once he saw SPY do a bearish EMA crossover and break below VWAP – his reversal thesis was confirmed and he entered some puts with the stop at VWAP.
I think his trading record will speak much louder than I ever can:
Bottom Line
As mentors, we cannot advise enough that you keep close track of any major market-moving events. After all, you can always ask us and check for announcements in our chat rooms.
I promise – this will save you a great deal of stress!
