It is about time to take this rate-talk distraction/annoyance out of the way.
If the Fed doesn't raise rates the market will be very disappointed and we will see a sharp selloff in equities because it will create great uncertainty. It will actually trigger the start of a bear market in my opinion. The market wants a rate hike. It is already priced in. The Fed has done a great job selling the rate hike talk to the public and to investor. They played their typical mental game and won again. So they will be very silly to pass this golden opportunity of raising rates without creating the wild volatility they can't handle.
I believe everyone is expecting it. I will be very disappointed and go long-term bearish the market because that is exactly what the market will do given how confused it will be as to what the Fed really wants. So the Fed can't overplay its hand.
The choppy downside action which we have seen that started on Wednesday, December 2nd after the Federal Reserve Chairwoman indicated during a speech to the Washington Economic Club, and on Thursday, December 3rd during a hearing of Congress' Joint Economic Committee, that the Fed is ready to raise interest rates on Wednesday, December 16th. That resulted to a sell-off on both days. And we have seen choppy/corrective downside action since then in anticipation of a rate hike.
I believe the recent drop is a "sell the rumor, buy the news" event as a result of emotional/news-driven traders jumping in to either short the market or close long positions as they wrongly believe raising rates is bad for the economy and stock market.
What to expect:
I believe we will see a big rise in equities after a rate hike. There will likely be an initial drop after the report as emotional traders jump in to short the market just based on the perceived "bad news" of a rate hike given all the pessimistic talk by permabears about the grave danger of a rate hike to the economy and stock market. That will then be followed by a reversal to the upside which will also be propelled higher as short covering starts taking place.
But given the pullback that has taken place since December 2nd, it is very likely that all the emotional trades have already been made. So if the market starts going up after the announcement expect a massive rise for the day.
How to play a rate hike announcement:
1) Immediately go bullish if the market starts moving up. 2) If price initially moves lower, go bullish when price moves back above the point it was at just before the announcement.
How to play the announcement if no rate hike:
1) Immediately go bearish if the market starts moving down. 2) If price initially moves up, go bearish when price moves back below the point it was at just before the announcement.
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