The most consistent side effect of the Federal Reserve’s FOMC meeting is a gigantic yawn … followed by an unpredictable pop or drop. Here’s how the S&P 500 reacted to all FOMC meetings over the past year.
The 12-member monetary policy making body of the Federal Reserve gets together eight times a year for a secret 2-day conclave.
Wall Street eagerly anticipates a carefully selected string of canned comments by the Federal Reserve chairman disbursed at the end of the meeting (usually Wednesday around 2:15pm EST).
Life on Wall Street is on hold until the Fed chairman (for the first time Janet Yellen) serenades the audience with her assessment of the economy.
The S&P 500 chart below highlights all FOMC meetings since the beginning of 2013 (yellow lines).
Do FOMC meetings affects stocks in a predictable manner?
The S&P 500 (SNP: ^GSPC) chart below shows all the FOMC meetings since the beginning of 2013 (yellow lines).
The most predictable pattern actually occurs before and during the FOMC meeting. What pattern? It’s about a two-day long yawn.
The blue boxes show prolonged sideways trading leading up to the conclusion of the meeting. There have only been two declines into the FOMC meeting (red boxes).
After the meeting the S&P 500 may pop, drop, or grind higher. There’s no direct link between FOMC decisions and the S&P 500 (aside from the obvious fact that QE is good for stocks over the long-term).
Here’s one interesting factoid you may sink your teeth into: When the S&P rallied into FOMC Tuesday, it was down on Wednesday 5 out of 6 times.
The S&P’s actual post-FOMC performance seems to depend more on other factors, such as the technical structure of the chart.
The green lines show that technical support stabilized or buoyed the S&P 500 at least three times, while the inability to stay above support contributed to the January/February correction.
The current technical picture is interesting as the S&P 500 dropped below support and the 20-day moving average on high volume last week, but struggled back above this week (on anemic volume).
Here’s a detailed analysis of what this – normally bearish price/volume pattern – means for the S&P 500 and SPDR S&P 500 ETF (NYSEArca: SPY) along with the resistance level, that – once broken – will unlock higher targets.
Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.
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