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Cramer: Profit from this predictable pattern

Wednesday, 30 Oct 2013 | 6:02 PM ET
Cramer dissects a familiar pattern
Wednesday, 30 Oct 2013 | 6:00 PM ET
Mad Money host Jim Cramer looks at A market pattern surrounding a Fed meeting.

(Click for video linked to a searchable transcript of this Mad Money segment)

Lately the market has been very predictable right before and right after a Fed decision.

Cramer thinks patterns will likely play out again.

"First, the stock market acts pretty cheery in the days leading up to a Fed meeting," Cramer said.

That's largely because the most recent data isn't strong enough to suggest the economy can stand up by itself. Therefore, the market expects the Fed to continue its bond buying program, which in turn drives down interest rates.

"Those lower rates allow companies to borrow more aggressively, hopefully, so they expand their operations, and ultimately hire more people."

Hence the cheer in the stock market.

Trader on the floor of the New York Stock Exchange.
Getty Images
Trader on the floor of the New York Stock Exchange.

However, on the day of the Fed meeting, sentiment shifts. "Even though the Fed does exactly what's expected investors get spooked. (Read more: Full text of Fed statement)

"Some actually believed that the economy was picking up and the Federal Reserve statement hits them like a splash of cold water; a real shocker that causes them to hit the sell button."

"Other sell just because they worry the Fed's bond buying program is akin to a house of cards and it's just a matter of time before all falls down."

No more cheer in the stock market.

"Then, a few days later the selling dissipates and buyers return."

That's because the Fed's bond buying program drives rates lower making stocks far more attractive the most other alternatives, especially bonds.

Cheer returns to the stock market.

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Although the pattern may seem somewhat banal, Cramer says it doesn't prevent investors from profiting by leveraging the repetition.

"It's become the modus operandi of the days surrounding each of these Fed meetings," Cramer noted. I bet this time plays out exactly the same."

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

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