We came into last week looking to buy into weakness. That turned out to be a smart trade, as the stock market opened lower on Monday and then reversed. By Wednesday afternoon, the S&P 500 was trading 90 points above Monday’s lows.

Today, the smart trade is to do the same thing as last week… buy into any weakness today.

You see, the stock market is in very much the same condition as it was in last Monday. The S&P 500 is trading below the closing lows of October and November. Technical conditions are quite oversold. Investor sentiment – a contrary indicator – is wickedly bearish. 

And on Friday, the S&P closed 55 points below its 9-day exponential moving average (EMA). That’s not as extreme as the 70-point gap we had last week. But, it’s far enough to create a decent “snap-back” rally if the bulls decide to step up later this week.

We also have one other factor that favors the bullish side this week… the Fed.

The Federal Open Market Committee (FOMC) meets on Tuesday and Wednesday. It will make an announcement on interest rates on Wednesday afternoon. And the FOMC is widely expected to raise interest rates one more time.

How the market responds to the FOMC announcement is anybody’s guess. There often doesn’t seem to be much rhyme or reason to the market direction afterwards.

But, there is a fairly consistent trading pattern in the days leading up to the FOMC announcement.

For at least the past two years, the stock market has usually traded lower on the Friday and Monday before the FOMC announcement. It has then usually traded higher on the Tuesday and Wednesday just before the announcement.

The pattern isn’t 100% guaranteed. But, off of the top of my head, I’d say it has played out with remarkable regularity at least 80% of the time. 

So, as we head into this week with the market in an oversold condition, with the proverbial rubber band stretched quite far to the downside, with investor sentiment at a yearly low, and with the FOMC announcement coming up on Wednesday, buying stocks into weakness today seems like a smart move.

Best regards and good trading,

Jeff Clark

Reader Mailbag

In today’s mailbag, a note from a Delta Report lifetime subscriber…

Hi Jeff, as a lifetime subscriber to the Delta Report, I appreciate your sage advice on buying and selling – especially options. 

– Scott

And another subscriber comments on Jeff’s Mastermind…

Jeff, I’m a huge fan and can’t thank you enough for teaching this class.

– Jonathan

Thank you, as always, for your thoughtful insights. We look forward to reading them every day. Keep them coming right here.