Fed’s outlook spooks stocks…

Although the Federal Reserve today committed to the continuance of bond purchases to help the struggling economy, it was their growth and job outlook that appeared to take the markets lower. On the day the Dow Jones Industrial Average (chart) lost 282.82 points, the Nasdaq (chart) -52.05, the S&P 500 (chart) -35.33 and the Russell 2000 (chart) -25.37.

In last weekend’s blog we discussed that the S&P 500 has been “range bound” and that a significant break above the 1225 level would need to occur for a valid breakout of the trading range.  Both Monday and Tuesday the S&P 500 (chart) flirted with the 1220 level only to retrace and close below it. Fast forward to today and we now find ourselves back in the middle of this multi-week trading range that seemingly has no end in sight. As long as the economy and the labor markets continue to experience anemic growth, I would expect this range will hold true to form.

So how can you trade this type of market? Very carefully!! A range bound market relies on the timing of the swings and if you attempt to “time the market”, you can easily get whipsawed back and forth and end up losing a lot of money. So my preference is to wait for a definitive breakout above or breakdown below the trading range of a given index or stock before considering entering a position.

Have a good evening.