If we rally strongly into the FED that means that most of the gain will be priced in. And the risk will be to the downside. We have already rallied what 800pts since the FED waved the white flag and said they were open to cuts. If the Fed's cut is priced in then you will get a pullback after the decsion. The ones that will pullback the most will be those that have been the worse performers the homebuilders/the banks, and the airlines.
That being said I think the FEd will cut big so even a rally may have more legs but It would be prudent to hedge. Out of the money puts will be cheap so It would be good to buy a couple for insurance.
Why is it a bad thing if we rally into the meeting? That seems counter intuitive. I'm also curios why you do not mention financials? Financials should benefit from a drop in the discount rate. I'm assuming that's because it's an under performing sector? It seems like you only play hot sector.
not sure yet. Depending on Monday's action and Tues morning's action I may pick up some call options in DE, CBI, JEC, X, MSFT, APD, or MS. I think the FEd is going to go to twon and hammer the credit markets free. The credit markets are back where they were before the Aug .5/.5 cuts. Therefore the FEd should act the same way. The stock market is in a better postion than the credit markets so they should cut maybe .25 on the funds rate and .5 or .75 on the dicount rate. They could also reduce the reserves req free up immediate liquidity into the market. The downside is the FED cuts by .25/.25 but I highly doubt it. It the market gets a little pullback on Monday/early Tues we should have a nice end of year rally. It we rally into the Fed meeting I will probably hedge with some out of the money puts on airlines, utilites, homebuilders, banks etc. I will pick one or two of the best acting stocks in each catagory and buy before the on oversold conditions before the decsion.
Personally I don't think this is overbought and I think this is just the beginning....moving into sp500 and index fund company have not even place their order yet.....but this is just my personal opinion.....