The Federal Reserve provides a gold mine of both medium-term investment opportunities and short-term trading opportunities.

The Federal Open Market Committee (FOMC) holds eight regularly scheduled meetings every year. One of those is being held this week, with a rate decision set to be announced at 2:15 p.m. Eastern on Wednesday.

The chart below shows an investable pattern in the medium-term stemming from the decisions of the Federal Reserve. There are strikingly similar movements in the S&P 500 SPX arising from QE2, Operation Twist, and QE3.

There is much consternation about the stock market drop last Friday and on Tuesday. However, a quick look at the chart shows that, to some degree, the pattern was predictable.

Combining the medium-term stage of the market after a major Fed action and the tendency of the market around the FOMC meeting offers short- term trading opportunities. The chart below shows the S&P 500 Index with and without the 24-hour, pre-FOMC returns.

This chart shows that about half of the S&P 500 return is related to the FOMC action and can be captured with short-term trades.

 

 

The best way to take advantage in the short-term is to use broad-based ETFs such as SPY, DIA, and QQQ .

For the longer-term investor, the analysis is more complex but none-the-less doable by any astute investor willing to put in the work…Read more at MarketWatch

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