How to Prepare for ‘Fed Week’

by | Dec 12, 2022

Get ready for a big week, Evolvers!

Over the next three days, crucial economic reports will be released.

Spoiler alert: It’s all about the Federal Reserve and interest rates!

But there’s something else to look forward to as well…

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Now, back to this week’s economic data…

Traders have been waiting for this all month as these numbers could cause the market to swing wildly.

But for all of the self-proclaimed economic geniuses on social media, I still see a lot of confusion about what information is coming out (and when).

Why should you care about this data?

Because if you aren’t aware of (and ready for) the events taking place, you could get caught flat-footed and miss a five-star setup (or take an avoidable loss).

When the market enters a week like this one — where critical data could materially affect the price action of the major indexes — it’s important to have a game plan for every possible scenario.

So, how can you prepare for any possible outcome this week?

Keep reading and I’ll show you…

The Producer Price Index Report

First, let’s talk about the data that was released last Friday … the producer price index (PPI) report.

This report details manufacturers, companies, and corporations’ wholesale costs over the last month.

The PPI report came in hotter than expected. In other words, it showed higher inflation than analysts were hoping for.

This was a blow to bulls who have been counting on a deflationary trend to cause the Fed to lower interest rates.

That said, the market held up remarkably well on Friday, trading flat for most of the day.

Right now, it feels like the market wants to hear good news and is shrugging off the bad news (for now).

How long will this sentiment last? No one knows for sure and anyone who claims they do is mistaken.

But it’s important to keep this in mind as we head into even more vital data this week…

The Consumer Price Index Report

Tomorrow, before the market opens, the consumer price index (CPI) report will be released.

This is the big one as it tracks the cost of the goods that consumers purchase regularly.

The price of food, shelter, and gas is at the forefront of everyone’s mind this year (and for a good reason)…

In 2022, we’ve seen inflation reach heights it hasn’t seen in four decades, having wide ripple effects across the entire U.S. economy.

But last month’s CPI report showed a surprising move lower in consumer prices and the market absolutely soared in response.

Now, bulls are looking for a continuation of that trend tomorrow (although the PPI report might suggest otherwise).

Meanwhile, bears will be hoping to see a high inflation reading, which could majorly affect the most important event of the week…

The Federal Open Market Committee Meeting

Finally, all eyes will be on the Fed as it convenes for the Federal Open Market Committee (FOMC) meeting on Wednesday.

This is when Chairman Jerome Powell will announce the Fed’s decision about interest rates.

Here’s what you need to know heading into the decision…

The Fed has raised interest rates by 75 basis points (bps) at the last four FOMC meetings.

But this time, traders are expecting a smaller hike, with betting markets pricing in a 50-basis point hike.

The question is this…

If the Fed decides on 50 bps, the market will likely surge. (However, keep in mind the possibility that 50 bps has already been priced in.)

On the other hand, if Tuesday’s CPI reading is hot, it could lead Powell to announce another 75 bps on Wednesday.

And that would almost certainly send the markets tanking to the downside.

How to Prepare for the Week Ahead

How can you prepare for this slew of information coming this week?

First, don’t feel like you have to trade around these reports just because other traders are.

Should you always be aware of what’s going on in the markets? Absolutely.

But do you need to make an actionable play around every major market event? Of course not.

In fact, overtrading is a recipe for disaster.

If you don’t have an extremely strong conviction in the play you’re making, you probably shouldn’t be making it at all.

That said, if you do plan to trade this week, make sure to take profits quickly and cut losses immediately.

The price action is likely to be especially unpredictable this week, so it’s even more critical than normal to be speedy with your decision-making.

Final Thoughts

Stay on your toes this week, Evolvers!

After these reports are behind us, we should have a much better idea of where the market might be headed over the next month.

Keep your eyes on the price action.

Meet Mark:

Mark Croock is a former accountant who after studying under Millionaire Trader Tim Sykes turned his small account into $3.19 Million in trading profits by applying Tim’s strategies to options trading.

He started Evolved Trader to pay it forward and help other traders learn how to leverage options

 

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