What A Strong Reaction To The Fed Could Lead To

Cobra

Last month I presented historical returns following days when there was a strong reaction (+1%) to a Fed (pictured at right) announcement. The results showed that the positive reaction was typically short-lived. Another highly anticipated Fed announcement is due tomorrow. Tonight I thought I’d present historical returns following a disappointment (just in case).



As you can see, a strongly negative reaction to a Fed announcement has typically been followed by a very positive next two weeks. So…if the Fed does something the market “likes” it will go up tomorrow, but over the next two weeks returns will likely be disappointing. If the Fed disappoints the market tomorrow we’ll see afternoon weakness. This disappointment could lead to a nice rise over the next two weeks. So the bulls should want the Fed to upset them tomorrow, and the bears should hope for a short-covering rally.

I find these tendencies to be quite interesting. My untested (as of yet) theory on why this occurs is that “good” news normally will come in the form of a rate cut or other stimulus. This kind of good news happens during times of economic and market weakness and the improvement for both can take time. “Bad” or “disappointing” news many times will come in the form of tightening. The Fed tightens normally when the economy and markets are strong. Just as they can’t fix it in a day, they can’t break it in a day either. Their “bad” decision won’t derail a rally right away and the market will typically continue to trudge higher for a while.

Whatever the reason, the point to remember is this: Don’t get too caught up in the reaction to the Fed tomorrow. The move likely won’t last longer than a day or two before reversing itself.

Edit note: Test was run back to 1982.

quickcow

照这样的统计，可以埋一个qid的炸弹。 今天若狂涨，引爆qid，几天后。。。；

palm

Cobra,

 

I think we need more result to see if this data are biased.

 

This data show that gain/loss around Fed meeting days. We need to have a non Fed meeting day to compare. However, it is very hard to get that. Fed meeting usually happens every month. There are only about 22 trading days in a month. This test already take out at least 10 days. We couldn't tell what did the market react to if the Fed impact is longer than that.  Or the 2 day result after Fed meeting will be chosen for trading if the Fed impact is so short lived.

 

I'm not against you but just play the devil's advocate.

[ 本帖最后由 palm 于 2008-4-30 12:37 编辑 ]

jeeplover

so, DJI going up today is a good news for Bears??? :(13):

ppteam

reduce positions, don't wanna bet on Fed

Cobra

原帖由 palm 于 2008-4-30 12:34 发表 Cobra,   I think we need more result to see if this data are biased.   This data show that gain/loss around Fed meeting days. We need to have a non Fed meeting day to compare. However, i ...

 

呵呵，转帖，不是俺的data mining。俺的工具还没整好，而且没法看Fed day，还有intraday。

6degrees

原帖由 Cobra 于 2008-4-30 12:25 发表 Last month I presented historical returns following days when there was a strong reaction (+1%) to a Fed (pictured at right) announcement. The results showed that the positive reaction was typically s ...

 

一会儿股市估计有往上跳的机会

 

 

happylux

一会儿股市估计有往上跳的机会
:According to Cobra, u r bear.

Kami

Is today's reaction strong? SPX did not fall 1%. However, it is off more than 1% from its daily high. QQQQ almost touched its 200 MA. I think the market is due for a correction.

CoolMax

我的理解，昨天跌，所以后两周涨的可能性大。

[ 本帖最后由 CoolMax 于 2008-5-1 10:34 编辑 ]

purety

cao!