Stocks continued modestly higher yesterday in front the two day FOMC meeting which starts today.  We could very well see the same type of action today as some investors don't want to be left behind when the Fed cuts rates.  But it isn't always that easy.

The Fed funds futures are counting on a 100% chance of a 0.25% rate cut, so the surprise would be no cut, or a 0.50% rate cut.  Then the fireworks will begin.  Regardless of what happens, we know the market likes to jump around shortly after the announcement, and for a day or two afterwards.

This rally leading up to the Fed could be one of those, "buy the rumor, sell the news"  events, but any surprises will make that decision for the market.

Tomorrow is the last day of October and at the bottom of this page our October seasonality chart shows that the last trading day in October shows a very positive average return, but being that it is the day the Fed will announce the interest rate decision and policy statement, I don't think seasonality will be the key factor.

The big green bars in early November are an attention grabber and certainly something to consider.  As we talked about yesterday, November starts the stronger 6-month period of the year for stocks.


                                 Chart provided courtesy of www.sentimentrader.com


The smart money seems to be bullish.  They, based on the 10-day moving average of the OEX put/call ratio, have been lightening up on their put options (bets against the market) and buying call options (bets the market will go higher) all during this recent pullback.  They tend to be contrarian in nature.  While the herd gets nervous, they get bullish. 
                
                                      Chart provided courtesy of www.decisionpoint.com

I anticipate that today and tomorrow will be on the quiet side, leading up to the 2:15 ET Fed announcement.  It's fun to speculate on what may or may not happen, but what we really want to know is, where do we put our money?   The problem with these 2:15 PM announcements is that it is well past our TSP deadline and we won't be able to react to the announcement officially until the close of business on Thursday.  Meaning, if you are in the G fund, for example, and the Fed says something you like and believe you should move into the stock funds based on what is announced, you can't be in the market until Friday morning (assuming you were out).  You either have to guess, or think longer term like, how will the market react AFTER the initial reaction?

That's all for today.  See you back here tomorrow.
 

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