Pre-FOMC Announcement Drift

Seems the bots are running some Christmas shopping algo today as the tape is drifting around without much participation. In case you haven’t heard – the Federal Open Market Committee (FOMC) meets for the last time this year on Tuesday and Wednesday. Timing is the main reason why this meeting is receiving special attention. Just so happens that Operation Twist comes to an end on December 31st and and Bernanke is expected to announce fresh measures to keep the party going. Whatever happens pre- and post-announcement, it should stir up quite a bit of volatility, So I suggest you keep your exposure small and your stops at arm’s length.

The E-Mini is running up a steep support line and is now right below a daily NLBL at 1424. There’s nowhere left to run and one of them is going to  be breached this week. Suffice to say that we are going to take whatever direction it takes. Long would be my preference as it’s a much easier trade. On the short side we would have to drop below the 100-day SMA to justify meaningful exposure to the downside.

Our speculative BIDU entry is in pretty good shape. After hopping over the 25-hour SMA it jumped higher and is now approaching its next short term hurdle. If it can overcome the 100-hour SMA then we ought to be good until that daily NLBL near 95.81.

If you enjoy inside day candle setups then this is your lucky day as I’m seeing them pop up all over the place:
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Let’s start with currencies today – the USD/CHF is painting an interesting ID candle near the 25-day SMA. So this is the plan – do nothing on a short breach but be long on a long breach tomorrow. Obviously today’s candle is bearish and the odds for the long scenario are low right now. However, this could be a pre-breach shakeout and if it pops higher tomorrow then we could see acceleration. It’s so evil, it just could work.

EUR/USD – another inside candle and this time it’s sitting right on top of its 25-day SMA. The long trigger here is the ID’s high of course, on the downside I would not take a position unless it drops below the SMA. Hope that makes sense.

CAD/JPY – also gracing us with an inside day candle. You know what to do as this is a traditional setup with no ifs or buts.

The greenback – guess what – inside day candle. That’s a rather interesting inverted hammer preceding today’s ID setup – in over 60% of the cases this means bearish continuation. Is the Dollar ever going to find a bid again? Not on Bernanke’s watch I guess!

Now on to bonds – what an exquisit setup!! I’m seeing a ton of support here and my preference would be a breach of today’s long trigger tomorrow. But if it drops through all that support then I’d be definitely short below the 100-day SMA.

And last but not least – here’s crude with a double inside day candle! This ought to be interesting 😉

If you’re a noob and don’t know how to trade ID setups then please look no further than our trusted cheat sheet. Keep it frosty and keep it small – I expect this to turn into a wild week once we make it past the dreaded FOMC announcement.

Cheers,