Daily Commentary - Posted on Thursday, November 3, 2011, 11:28 PM GMT +1

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Nov Thursday 3

SPX w/ Follow Through after FOMC Meeting

When news came out that the intended referendum in Greece will be (at least temporarily) cancelled, and the ECB surprisingly lowered interest rates, index futures and major market indices got a boost Thursday, and the S&P 500 finished the session with another impressive 1.88% gain on the heels of a 1.61% gain on Wednesday’s FOMC announcement session (since 1990, and out of 31 occurrences, the first time that the index gained more than +0.75% on a day immediately following a gt. +1.50% gain on an FOMC announcement session, see SPX Up > 1.50% on an FOMC Announcement Session).

Although during the first hour of the session the index acted in accordance with the setup triggered on Wednesday, November 2, calling for limited upside potential, by giving back all and some of the S&P 500 futures pre-opening gains (almost +1.50%), but reversed course again at the end of the first hour and never looked back again into the close.

But when the S&P 500 posted a greater than +0.50% gain on a back-to-back session immediately following an FOMC announcement session (up 0.50%+ on the FOMC announcement and the then following session as well) in the past, the market shows a tendency to at least consolidate some of its recent gains over the course of then following couple of sessions.

Table I below shows all historical occurrences and the SPY‘s (S&P 500 SPDR)  performance over the course of the then following 1 to 5 sessions in the event the SPY posted a greater than +0.50% gain on a back-to-back session immediately following an FOMC announcement session in the past.

The SPY closed at a lower level the next day (in this event on Friday, November 4) on 7, and three days later on 9 out of the last 10 occurrences. In addition, the SPY closed lower -1.0%+ three days later on nine, but up +1.0%+ on only three occurrences, and -1.0%+ four days later on 8, but up +1.0%+ on only two occurrences, with a negative median change concerning all of the then following five sessions.

But be careful, financial and political news from Greece, other european countries like Italy and Spain, and the G20 meeting in France may have a major impact on market movements (GLOBEX, intraday and close-to-close), and at the moment almost everything seems possible, even – with respect to historical probabilites and odds – an extraordinary (and unexpected) move like today (see SPX Up > 1.50% on an FOMC Announcement Session), going from -1.5% on GLOBEX to +1.88% on the close.

Successful trading,

Frank

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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