 | BY Keith Kaplan
CEO, TradeSmith |
Why I'm Skipping Today's Fed Event I can’t think of the last time I spent my precious time watching a Federal Reserve press conference. It must be years now. Yes… even before the rate-hiking campaign that threw an extra-bright spotlight on the Fed in 2022. I realize that most of the investing world puts a lot of stock into these events. And I’m aware that interest rates have a big impact on the economy. But I ask you… have you ever done anything meaningful while or immediately after watching one of these events? Are you trading while you watch them? Do they help you make money? Do they move the needle at all for you? They don’t for me. (Maybe you’re different – write me at feedback@TradeSmithDaily.com and tell me how.) And once I realized that… I happily opted out of the feeding frenzy and have saved a lot of time. I encourage you to do the same. Because opining on what the Federal Reserve will or won’t do every meeting – and how the market will react – will probably just drive you crazy and not make you money. At TradeSmith, our philosophy is to let data be your guide in the investment world – not the headlines. Because when you follow our data… you start to realize that the Fed’s policy announcements are not much of a useful trading signal. Really, they’re an opportunity for the mainstream financial media to serve up “clickbait.” To that end… let’s spend today focusing on useful trading signals. Here’s three things at top of mind for me that AREN’T the Federal Reserve rate decision happening right now. Three Signals to Follow Right Now It’s September, historically the worst month of the year for stock prices. But we’re halfway through the month and… the S&P 500 is down just a touch, at 0.32%. That’s well below the long-term average of a -1.1% loss. So, trend debunked? Not quite. Take a look at our TradeSmith Seasonality chart of the S&P 500 going back 74 years. You can see how most of the poor September returns actually happen in the back half of the month. As the chart below shows, the average return is -1.08% from today through the end of September: 
So, while we saw a big whipsaw last week, the data shows we should see a bit more selling before the month is out. Coincidentally, the selling does seem to begin right after this month’s Fed press conference. So, if you weren’t sure how to feel about stocks going into today’s rate decision, now you have a better idea. I think if you’re looking to buy, you’ll have a better chance over the next couple weeks. Especially given the seasonally strong period set to come in the final three months of the year. - But let’s talk individual stocks. What are we seeing out there?
Well, here at TradeSmith, we recently started publishing a fascinating internal report. It shows us which stocks and sectors are on short-term streaks of consecutive higher closes. Not only that, it shows us the forward performance of those stocks when they’ve seen those same conditions in the past. I look at this report every day to see who’s at the top of the “Trend Leaderboard,” as we’ve come to call it. And one name stuck out to me on Monday’s report: eBay (EBAY). At Friday’s close, EBAY was up eight days in a row. That’s a nice win streak. It also completely ignored that swift correction we just saw. That’s putting it into overbought territory on the Relative Strength Index (RSI), which is sitting at nearly 83 right now. But that doesn’t mean it’s a sell. In fact, out of all the stocks on the Trend Leaderboard, EBAY looks like one of the strongest buys. EBAY has been on an eight-day win streak 10 times before. On average, the forward gains from a streak like this are incredible: - 1 trading day after this streak, it climbs 0.37% on average
- 5 days later, it’s up 6.7%...
- 21 days (or one month) later, it’s up 7.26%...
- And 42 days later, it’s up 15.2%.
EBAY is a really interesting momentum play here. Even if it does snap its win streak, history shows us that would be a buying opportunity. Again, the FOMC meeting isn’t going to show you anything like this. It’s just going to rattle you. So, don’t bother to hang on every word Jerome Powell says. You can do better with data. - Here’s another idea in that regard…
Another one of those reports we publish is the RSI Extremes report. This simply shows us: - The RSI level for dozens of ETFs
- How far above or below each ETF is from its 50-day moving average.
These two metrics are the bedrock of overbought and oversold conditions. By combining them, we can get an even better look at which sectors are good targets for reversals. Right now, the most overbought sector in the stock market is the iShares Real Estate ETF (IYR). That’s at a red-hot 79 on its Relative Strength Index, and is more than 8% above its 50-day moving average. That’s not too surprising given the excitement about the Fed’s rate cuts. Everyone in real estate is begging for lower interest rates so that folks squatting in low-interest mortgages can finally get out and start buying again. To me, this looks like it’s setting up a “sell the news” trade. The Fed’s announcement is the perfect catalyst for some profit-taking in the real estate space. Conversely, the SPDR S&P Oil & Gas Equipment & Services ETF (XES) is the most oversold sector in the market, at an RSI just under 31 as of Friday – its lowest point since December. It’s also almost 12% below its 50-day moving average. Why this particular sector is so beaten-down, I couldn’t tell you. I’m not an expert in the oil market. But stocks that get this oversold don’t tend to stay oversold for very long. If you wanted to take some of your real estate profits and put them into the oil services sector, the data is backing you up on that. As for individual stocks, TradeSmith Finance users can plug in any ticker for oil & gas stocks, real estate stocks, or any other sector that catches your eye to see if its RSI indicates “oversold,” “overbought,” or somewhere in between. According to our research, a reading of 30 is the ideal buy signal – specifically, buying the day after that happens – as I shared in August. You can also set RSI alerts for your portfolio positions in TradeSmith. For example, we could alert you when one of your stocks reaches 80 on the RSI, then falls back to 70, which we found in August was the ideal time to sell: 
We also added a screener called RSI Precision that finds opportunities to buy high-quality stocks – with a history of positive earnings and revenue surprises, for example – based on the RSI signals I just described. So, we’d buy them the day after they dip below 30 on the RSI… then sell the day after they cross 80 then fall back to 70. And speaking of oil & gas: One of the oil giants, Occidental Petroleum (OXY), is among the stocks featured on our list of RSI Precision Opportunities today. To run the screener for yourself, I’d recommend upgrading to TradeSmith Platinum. For the time being, the RSI Precision screener is exclusive to those users. I’ve also just announced a brand-new benefit I personally will be delivering to our Platinum Partners, and membership is open through this Friday, Sept. 20. But suffice to say, any of the tools I just showed you are a much better use of your time than things like the FOMC meetings. I think you gain a far greater edge as an investor exploring your options in TradeSmith. I know these events can often seem like the most important thing in the world… but just this once, consider sitting this one out and maybe making a trade or two based on what I shared with you today. The Fed’s policy decision is completely out of your control. But trading these valuable short-term signals very much is. I’ll be back to you with more next week – this time focusing on a mind-blowing piece of research on when to buy and sell stocks. And be sure to let us know your thoughts on today’s piece at feedback@TradeSmithDaily.com. All the best,  Keith Kaplan
CEO, TradeSmith | 
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