What to Do: Market Parameters for Fed Action

Steve Kanaval |

stock markets today, stock markets now, stocks to buy nowThe Dow will either rally 600 points or fall 600. For me, I think it’s that simple. Having said that, here is what I would do if markets move higher or lower.

For analysis purposes, I like to use the SPDR S&P 500 ETF (SPY) and a move of 600 Dow points is approximately a 4% shift. If we use the same 4% move in the SPY, it translates to nearly 8 points, trading at $196 (close enough for government work). On the upside, in the event of a 4% move the SPY would test the 204 area and conversely a 4% move would fall to the 188 level on the downside.

These are the things I would do. Please read this article, as I am working with an established position already and it is important to this exercise. Click here.

If you clicked on the link, you will see that you have a 40% position in SPY at near 200. On the upside, I would just continue selling your scale up into any rally. Remember: unemotional trading has to do with price NOT time.

On the downside, I would add 20% to my short into weakness once the markets settled down below 188. This is a difficult trade for many to stomach (selling weakness is always counter intuitive), but in my experience is nearly always the right trade to make.

I would not get caught up in the emotion of why—markets make little sense during volatile uncertain times—you are better off developing a steel conviction and observe unemotionally the market action.

What I Expect to Happen

I expect the market to go down, and I am hoping for an opportunity to activate the scale listed here because I believe the market is heading lower. Click here to read previous. Markets rarely have a cycle beyond 6-7 years and we are so far into this bull-run that it is extended. I think most of the action we have seen over the last 2 years is nothing more than a top.

I also think global equities will reach a level of value for specific sectors in 2016, and I believe the overall market will bottom in 2017 after the inauguration when we get a fresh start with a new leader. I believe FANG (Facebook (FB) , Amazon (AMZN) , Netflix (NFLX) , and Google (GOOG) ) are the few mega-cap stocks that matter (notice Apple (AAPL) is NOT in this group because it is a proxy for the entire market).

I believe the days of closing your eyes and buying stocks are over for this investor cycle, and the trading world will become more mechanized than ever with robo-investors becoming a larger part of day-to-day trading activity. Currently, we have a very large part of daily volume falling into the category of high-frequency trading (HFT). This will only grow and add the robo-trade crowd to these numbers, and it will become humans versus machines until the regulators step in after hyper-volatility.

So there you have it. You heard it here first.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 119.21 1.26 1.07 9,936,371
AAPL Apple Inc. 112.08 1.05 0.95 11,094,337
AMZN Amazon.com Inc. 768.82 -1.60 -0.21 1,390,439
GOOG Alphabet Inc. 774.30 3.11 0.40 507,300
NFLX Netflix Inc. 124.38 -1.02 -0.81 3,896,850

Comments

Emerging Growth

Reliq Health Technologies Inc.

Moseda Technologies Inc provides mobile and IT cloud computing to increase operational efficiency and security. It develops SmartFleet, a solution designed for commercial use, as well as SmartCare, a mHealth…

Private Markets

BioSculpture Technology, Inc.

BioSculpture Technology, Inc. (“BST”) is a commercial-stage medical device manufacturer of liposuction surgical instruments for surgeons. It offers the FDA-cleared Twin Cannula Assisted Liposuction ("TCAL") Airbrush Liposculptor II® controllers, Airbrush®…

Initial State

Initial State is an Internet of Things (IoT) data analytics & data management platform company. We turn sensor and event data into information that matters by making it easy to…