I hope everyone had a happy Halloween! The markets had the best month since 1976, but with the Fed announcement around the corner, trading should remain choppy until we have a clearer direction for future rate hikes. 

The majority seem to think the Fed is done with higher hikes and will return to normal, but I’m not as convinced this will be the last 75 basis point hike.  

I’m more interested in how the dollar will react. If the Fed remains hawkish, stocks and bonds will sell off and the dollar will rally.  A strong dollar won’t help businesses in the long run.

And while the market has had a strong month, here’s a chart to show that we may retreat from here.  The SPY (S&P 500) retreated from the August high and this rally can be viewed as profit-taking for the bears.  Until we cross over the 61.8% retracement, I don’t believe this is any more than a bear market rally.  An impressive one, but still falling within the overall bearish trend.

That said, elections are next week and can further add to the noise. Since World War II the party in office has only gained Congressional seats twice during midterms, meaning historical statistics are on the side of the Republicans.

Markets tend to bounce after elections for the year following midterms, and depending on how Congress goes, that will dictate the sectors to look at going into the new year. More on that next week.

Today’s trade idea is in the semiconductor industry.

ON Semiconductor (ON) just posted earnings and fell flat yesterday, falling nearly 9% in a day. The semiconductor industry is in a bit of a mess with the US and China battling it out for technological supremacy, but ON has a history of performing well in the 4th quarter.

Yesterday’s move brought the stock below its 50-day moving average, so I’ll be watching out to see if it will cross back above it in the next few days, but if it can, this should be a stock on your watchlist.

ON has historically risen by just over 20% during the next 13 week period, based on over 22 years of trading history. The company has risen in 18 of those 22 years, giving it an 81.82% historical win rate.

If the stock can cross over the green line, I’d look for an entry around $66 and a 20% average return would mean a goal of $79. There’s resistance around $76, but if the Fed gives a favorable message, this could be a stock worth following.

If you have any questions, comments, or anything we can help with, reach us at any time.
Email: [email protected]
Phone: (866) 257-3008

Jeff Wood

Editor, Filthy Rich Dirt Poor

Trader, Options Testing Lab