This week, the Federal Reserve will announce its plans for the future of quantitative easing, its $85 billion monthly bond-buying program. And traders are warning that if the Fed announces a reduction, or “tapering,” of asset purchases, the market reaction could be negative and violent.
For that reason, anyone who is long stocks might do well to hedge their positions ahead of Wednesday’s announcement. “This week, defense wins games,” said Rich Ilczyszyn of iiTrader. He recommends taking on bearish positions on the S&P “in case we get that taper. The idea here is that if they do taper, I’m going to capitalize on this move.”
The Federal Open Market Committee meets on Tuesday, and will release its statement on Wednesday. After that release, Fed Chairman Ben Bernanke will hold a press conference to clarify the Fed’s intentions.