Daily Commentary - Posted on Wednesday, January 26, 2011, 3:12 PM GMT +1

1 Comment


Jan Wednesday 26

What a Difference a Fresh 52-Week High Makes …

With today’s FOMC announcement session (the Fed announces its policy decision – typically whether to change the fed funds target rate – at the end of each FOMC meeting, regularly 2:15pm ET), the S&P 500 is in close distance (0.30%) to posting a fresh 52-week high. The outcome of today’s session – the S&P 500 posting a fresh 52-week high or not – will probably give direction to the S&P 500’s performance over the course of the next five sessions.

Table I below shows the S&P 500’s historical probabilities for posting at least 1 higher | lower close over the course of the then following 1 to 5 sessions, and the index’ probability for closing at a higher / lower level (exactly) 1 to 5 sessions later.

The first column (‘FOMC 1‘) represents those occurrences where the S&P 500 closed at a fresh 52-week high on the respective FOMC announcement session, while the second column (‘FOMC 2‘) represents those occurrences where the S&P 500 was in close distance (within a 0.50% range) to a fresh 52-week high on close of the session immediately preceding an FOMC announcement session, but failed to post a fresh 52-week high on the respective FOMC announcement session.

Although the number of occurrences is roughly identical, there is an eye-catching delta with respect to the S&P 500′ chances for posting at least one higher close during the then following five sessions, and for closing at a higher level (exactly) 1 to 5 sessions later as well.

After posting a fresh 52-week high on an FOMC announcement session in the past, the market was regularly trading higher four and five sessions later (72.73% and 79.55% of the time respectively, significantly better then the at-any-time chances for a higher close four and five sessions later), while quite the opposite applies when the market failed to post a fresh 52-week high on an FOMC announcement session. Chances for a higher close four sessions later are 47.50% only, and more or less even five sessions later, below at-any-time chances for a higher close four and five sessions later.

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Table II below shows all occurrences (since 1930) and the S&P 500’s performance over the course of the then following 1 to 5 sessions, assumed one went long on close of an FOMC announcement session where the S&P 500 posted a fresh 52-week high in the past.


+ no close below trigger day’s close during period under review
no close above trigger day’s close during period under review

The S&P 500 closed lower -1.0%+ four sessions later on only 3, but higher 1.0%+ on 16 out of 44 occurrences (downside potential was regularly limited), and closed at an even higher level five sessions later on 35 out of 44 occurrences. In addition, the S&P 500 never looked back and did not post a single close below the FOMC announcement session’s close on 20 (!) occurrences, or almost 50% of the time, while the opposite (not a single close above the FOMC announcement session’s close) applies to only 4 occurrences.

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Table III below now shows all occurrences (since 1930) and the S&P 500’s performance over the course of the then following 1 to 5 sessions, assumed one went long on close of an FOMC announcement session where the S&P 500 was in close distance (within a 0.50% range) to a fresh 52-week high on close of the session immediately preceding an FOMC announcement session, but failed to post a fresh 52-week high on the respective FOMC announcement session in the past.


+ no close below trigger day’s close during period under review
– no close above trigger day’s close during period under review

Now the S&P 500 closed lower -1.0%+ four sessions later on 5 (instead of 3), but higher 1.0%+ on only 8 (instead of 16) out of 44 occurrences, and closed at a higher level five sessions later on 21 (instead of 35) out of 44 occurrences. In addition, the S&P 500 never looked back and did not post a single close below the FOMC announcement session’s close on 13 (instead of 20) occurrences, while the opposite (not a single close above the FOMC announcement session’s close) applies to 9 (instead of 4) occurrences.

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Conclusions:

The outcome of today’s FOMC announcement session – the S&P 500 posting a fresh 52-week high or not – might give direction to the S&P 500’s performance over the course of the next five sessions, furthermore (straight) up or sideways to (slightly) lower.

Successful trading,

 

Frank

 

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If the information provided is helpful for your own trading business, any donation to my Be it! Children’s Charitable Foundation is much appreciated (donations can be sent via PayPal).

Sincere thanks are given to all of you.

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Disclosure: No position in the securities mentioned in this post at time of writing.

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Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets).

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Disclaimer

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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Comments (1)

 

  1. Alex says:

    Regarding macroeconomic releases and equity markets I suggest U to take a look at yesterday Consumer Confidence. The release was 15% higher than the previous one. Since 1998, when Bloomberg mantain the exact release date (I have to check more, if there is a rule, to find the exact release date that in the past), there have been other 12 istance when the 1 month ROC of this release was greater than 10%, and in 10 issues (83.3% of all cases) the SPX was higher after about nine months (175 Trading Bars).

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