How to Trade the Fed’s Seven-Year Itch

This post How to Trade the Fed’s Seven-Year Itch appeared first on Daily Reckoning.

The chants from Wall Street echoed all the way down Interstate 95 into our Baltimore office yesterday afternoon…

ZIRP is dead! Long live rising rates! (Just don’t raise ‘em again anytime soon, OK?)

In a unanimous decision, the Federal Reserve has decided to crank up interest rates for the first time in seven years from next to nothing… to slightly more than next to nothing. And stocks finished the day higher in celebration.

Where is the market going next? My take in a second…

The post-Fed freak out from the financial press will probably continue well into the holiday season. The professional policy speculators will tear into what the quarter-percent hike means, guess when the Fed will hike again, and pontificate on the ramifications of the tiny hike amidst what has been a crazy year for the markets.

Fed Rate Hike Shirt

Then there’s the Fed predicting inflation will pick up in 2016. The Fed also says it expects to hike again as early as next year.

But these are just guesses. The Fed. The pundits. The analysts. No matter what they tell you, no one in any of these groups has a crystal ball. They’re just throwing a bunch of jargon at the wall to see what sticks…

You know who else doesn’t have a crystal ball? Yours truly. But as far as I’m concerned, it doesn’t even matter. That’s because these guesses mean nothing to our trades—and even less in the grand land of the stock market, where supply and demand reign supreme.

In fact, we can just heap all these guesses in the pile with the rest of the rejects. Which reminds me—Barron’s big 2016 market outlook just hit newsstands. And as you might have already guessed, their bold predictions for the New Year are about as vanilla as it gets…

The number of strategists Barron’s polled who believe the major averages will sink next year? Zero. Instead of ZIRP, Barron’s offers us ZIBP – Zero Interesting Bearish Predictions.

“The strategists Barron’s surveyed expect that earnings growth, which has been mostly flat this year, would be the major driver of the stock market in 2016, while the price-to-earnings multiple stays mostly unchanged,” Business Insider reports.


On average, the strategists say we’ll see the major averages rise 10%, with tech stocks and financials leading the way. Will they be right? I doubt it. They never are.

And what they ain’t telling you is the market will always manage to throw a few wrenches in the gears. And if 2016 is anything like 2015, the S&P 500 and the Nasdaq won’t even begin to tell the whole story…

That’s why we’re not hanging our hats on any grandiose market guesses here. We simply can’t let this type of bias infiltrate our trading strategies. Whether interest rates are at zero or north of 20%, we’ll just stick to the charts and let price do the talking. There’s always a potentially profitable trade right around the corner…

Want to make money next year?

Forget the Fed… and follow the charts.


Greg Guenthner
for The Daily Reckoning

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The post How to Trade the Fed’s Seven-Year Itch appeared first on Daily Reckoning.