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FOMC Trading

We started the week on very light volume and a couple of inside days, meaning very tight trading ranges, even the volatility index has been coming down dropping down to about 52. FOMC Tuesday comes along, and with Fed rates already at 1% the expectations were for a 50bps to 75bps cut in rates. You wonder how much of an impact monetary policy will have on these markets at these levels, only the announcement would let us know. What an impact we had… the announcement came in and right from the start we started seeing large buy orders hitting the system. Almost 100 million shares of QQQQ traded in the last two hours, 150 million of the XLF traded as well, every pull back in the market in the afternoon was a long. Traders had to be reminded that you never test a trending market, meaning if the flow is positive and strong, don’t look for a short. Those that did got burned.

The large volume that we got in the last two hours plus the fact that we closed on the highs, will make tomorrow very interesting. We have seen that over the last eight trading days, negative news has not really resulted in a major sell off or a test of lows, we also know that hedge funds and mutual funds have been sitting on cash scared of redemptions. For now all these factors and today’s news has send us off to test monthly highs.

Today’s lesson is very simple for intra-day traders. Trade with the flow, and never get married to a position. Do your homework overnight and be prepared for an interesting day tomorrow.


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