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Fed leaves rates unchanged

HAVING TROUBLE PRINTING?
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Today's FOMC decision was to leave the Fed funds rate unchanged at 1.75% and to leave the discount rate unchanged at 1.25%. All Fed policy members voted in favor of today's "non action." Early comments has the FOMC policymakers making observation that economic activity has been receiving considerable upward impetus from a marked swing in inventory investment, but the degree of strengthening in final demand over coming quarter, an essential element in sustained economic expansion, is still uncertain. The policymakers added that although the stance of monetary policy is currently accommodative, the Committee believes that , for the foreseeable future, against the background of it long run goals of price stability and sustainable economic growth and of the information currently available, the risks are balanced with respect to the prospects for both goals.

Just prior to today decision on interest rates, the major market averages had neared their best levels of the session, but since the decision was announced, stocks have eased back off their best levels, but look to be digesting today's decision as a "non event." This may not be surprising to many as the Fed acted as most had expected.

All eye now on Cisco

With today's news on interest rates out of the way, traders and investors will be monitoring networking giant Cisco Systems (NASDAQ:CSCO) $13.21 +2.58% earnings announcement. The stock has traded lower in recent weeks ahead of this evening's earnings. Subscribers holding the stock short/put should either lock in gains from past commentary, or be willing to roll the dice ahead of tonight's report. I would strongly suggest that traders not attempt to trade the stock in after-hours trading. In recent months, the action in after-hours trading among "big tech" has been rather unpredictable and not necessarily indicative of the next day's trading.

Current risk reward based on our bar chart is just above 50/50 and traders not willing to risk bearish gains in the stock should close out position here. On Friday, I suggested that bears short/put the stock from previous commentary take 1/2 of those position off the table, very near current levels. This allows the trader to reduce risk in his/her account and still play the stock into earnings. Under such a strategy, by taking partial gains off the table any bullish reaction to tonight earnings would have less of an impact to the trader's account. Should the market reaction be negative, then the partial position still held short/put then becomes icing on the cake.

Cisco Systems Chart - Daily Interval

Shares of CSCO have traded lower into tonight's earnings. I would have liked to have seen the stock fall to the $11.24 level for previously bearish profile near $15, but a trader must manage his/her account. It sure looks like market makers have the stock positioned right at a 50/50 level. Not only from the mid-level of regression, but also as it pertains to the 100% and 61.8% retracement levels, with 80.9% at $13.25 being smack dab in between these two levels.

This has me thinking any type of "bullish" news out of CSCO could have the stock trading the $15.27 level and any overly "bearish" news could have the stock sinking to the $11.24.

Jeff Bailey
Senior Market Technician
Option Investor

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