Short-term Outlook:  Neutral (since June 3, SPX 924)

Intermediate-term Outlook: Neutral (since April 9, SPX 843)

Can't Hold The Gains

06/24/09 3:35 PM EST

This morning we took a look at some FOMC-related stats, which showed that when we gap up +0.5% or more the day of a Fed announcement, we tend to close higher than the open as well.

So far we've seeing one of the weakest post-FOMC reactions ever, given how positive we were to begin the day and how positive breadth was just prior to the release.  Out of 11 times the S&P futures gapped up more than +0.5% on a day like this, only once (05/07/02) did the futures close below the opening price.  We're close to doing that today.

The most consistent trades following a major economic event occur when we see an extreme positive or negative close (or open) on the day of the release, and we're not really getting that today given the selling pressure this afternoon.

The best bet for a trade would have been a short if the S&P had shown a more positive reaction following the FOMC statement.  There have been 10 times the S&P opened at least +0.5% above the prior close on an FOMC day, and then closed above the opening price (which is still a possibility with a rally into the close).  Over the next two days, the S&P was positive only 1 time, and sported an average return of -1.9%.  Even though that's clearly negative, I'd have been more willing to trade it if we hadn't already dropped so much this afternoon.

There are obviously a lot of factors in play besides just the FOMC (GDP and jobless claims tomorrow morning come to mind), but these reactions have been remarkably consistent at the extremes.  Unfortunately there isn't much I'm finding in today's reaction that gives an edge going forward.  It's probably a negative for the short-term if we rally into the close, but I'll have to take a closer look at today's closing numbers.

SHORT-TERM SIGNPOSTS (USUALLY LOOKING AT THE NEXT 1-5 DAYS)
BULL / BEAR	SIGNPOST	% POSITIVE, #, PROFIT FACTOR	TIME FRAME	TRIGGER DATE	NOTES
	S&P gaps up +0.5% on an FOMC day and closes at least +0.5% as well	10%, 10, .03	2 days	06/24
% Positive:  the percentage of time the S&P was higher the given number of days later #:  the number of occurrences in the study Profit Factor:  using long trades only, this is the gross profit made from winning trades divided by the gross loss from losing trades (anything above 1.0 suggests an upside edge, and the bigger the better)