The Fed's Hijacking the Stock Market. Here's How to Prepare...

The stock market sputtered and coughed Monday morning like an old lawnmower running out of gas.

The first 15 minutes of trading this week was filled with bizarre pops and drops as traders and algos jockeyed for position. The tape had no rhyme or reason. And even when everyone settled in later in the morning, the market continued bucking back and forth until the major averages finally finished the day in the green.

Make no mistake about it—this is not your average trading week. But today, you’re going to see exactly how to play this whacky market. And the answer might surprise you…

No, the market’s not in a good place right now. The list of problems keeps getting longer. As of today, we’re dealing with a junk bond meltdown. Oil and natural gas are in extending their losses. Precious metals are cratering. Small-caps are quickly careening toward their October lows even while the major averages have recovered some ground. Even market breadth is crumbling…

And thanks to Supreme Commander Janet Yellen, the first half of the trading week will be filled with nail biting and whipsaw market action. Then we get the big decision on the rate hike on Wednesday afternoon. Hurray!

The odds say the Fed is gonna hike. But that’s all we know. Even if you hopped in your hot tub time machine and found out there was no question that the Fed was going to hike rates, there’s still no way to know how the market will react once it becomes reality Wednesday afternoon.

So we’re left watching this slow-motion train wreck for another 30 hours. I hope you brought popcorn…

To make matters worse, the S&P is in the red by about 2% for the year.

But here’s the thing—most investors can’t even hang their hat on a 2% loss for 2015. And heading into the home stretch, it doesn’t look like things are gonna get much better anytime soon. In fact, a 2% loss is actually a best-case scenario for the average investor, Jonas Elmerraji explains from over at our trading desk.

“That’s because research shows that most retail investors dramatically underperform the market thanks to fees and poor timing. Last year, research firm Dalbar reported that the average stock investor undershot the S&P 500 by 8.19%,” Jonas says. “Dalbar’s 2015 numbers won’t be out for a few months, but I’d expect them to be bad. In general, individual investors always underperform the broad market by some amount – remember, the S&P 500 lives in the land of make-believe, where commission fees don’t exist.”

Here’s how that annualized performance gap has looked going back to the year 2000:

So much for grabbing those “average” returns every year…

Now’s not the time to be a trading hero. The Fed’s ready to throw a stick in our spokes, and a negative reaction to whatever happens tomorrow afternoon could leave an already weak market stumbling headfirst into 2016.

Let’s lay low for a bit and let some of this noise dissipate before jumping into any new trades this week. I know that this Fed Day holding pattern isn’t ideal—but it’s a prudent move as the market limps into what could be the biggest trend-busting day of the year…

Sincerely,

Greg Guenthner
for The Daily Reckoning

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