How the market moves after a FOMC announcement

How to play the FOMC STIR announcement action is a topic of much discussion amongst day traders. I have found that the FOMC announcement produces a 3 stage move:

Stage 1: the move is in the direction of ultimate trend, but it only lasts for a few minutes if that. This move is called the "weak hand move" since it is usually taken by weak, quick hands that can't wait for the trend to establish itself and have to get right on the leading/bleeding edge.

Stage 2: this is a reverse of stage 1 against the ultimate direction about 50% of the stage 1 move, and then it reverses sometimes in a very ugly manner - meaning not a clean "V" reversal and it usually reverses off some important support & resistance line. This is called the "fake-out move."

Stage 3: this reverses the stage 2 counter-move and reestablishes the original direction after faking out the weaker hands that give up their original position to stronger hands that have the calm to wait out the first weak move.

This is not guaranteed, but a move that I have seen over and over given the kind of information the FOMC releases at 1415. Remember, the stock market is discounter of future information and it has already priced in a 50bp STIR cut so if the FOMC does something not at the 50bp level or makes some big change in their language about future rate moves.

I would suggest that you don't play this type of move the first couple of times, but just watch to see if you can pick out the 3 stages of the market moves after the FOMC STIR announcement.

Finally, if the cuts are what the market expects, in this case 50bp, but there is some change in the language about future interest rate moves, it may take the market sometimes up to 15 minutes to go through the above 3 stages as the language is analyzed and disseminated.