Fed Day, Gold and Energy...

It is the day before the Federal Reserve announces its interest rate decision and for short term traders the volatility around that announcement can make things challenging. Since the market has roared to new highs in Canada and is close to doing the same in the US, a 25 point basis cut is no longer perceived as a slam dunk. A few short weeks ago, analysts were almost unanimous in their prediction of a rate cut but as of today, those odds have fallen to 65%.

At this point, most of the stocks on our watch-list are precious metals and energy companies, with a few cyclical stocks that tend to follow the broad market. I won't make any predictions but regardless of what happens, traders need to have a plan on how to trade it, if at all. Market whipsaws make these decision days incredibly hard to trade and for most traders the best bet is do do nothing for a few days until a market direction becomes more clear. That being said, I am watching closely for a tradable bottom in mining stocks, which are now oversold on the daily time-frame.

XGD (the gold miner ETF) has been bouncing around in this area for a week or so and is having a pretty strong day today. If it continues upwards into market close, I would consider buying several mining stocks, with a stop underneath the recent low. A second option would be for gold miners to have a big flush tomorrow that takes them below their recent lows, which would knock traders out their current positions. This would quite possibly be followed by a reversal upward, which I would also buy (stop below the new low). The third option is that miners drift downward and do not reverse. In this scenario, I would not buy and we would be back to waiting. These are the three scenarios that I am currently envisioning and I have a plan to follow in each case. I recommend that all traders do the same.

Regarding energy, the situation is very different. The price of oil spiked 15% on Monday and this sent energy stocks soaring. Today oil has dropped a little but energy stocks remain considerably overbought on the daily time-frame.

We can see here that XEG (Canadian energy ETF) gapped up hard at Monday's open and it is quite common for the price to retrace back down and fill the gap. For this reason I have closed my short term energy positions and will wait for another set-up to develop.

Good luck to all!