Wednesday, August 6, 2008

Fed Day Spikes - Historical Aftermath

Last night’s study suggested a decent likelihood of a rise today based on the fact that the market was short-term oversold going into a Fed meeting. Today the rise came in a big way. So what happens after the market spikes up on the day of a Fed meeting? I ran a study:

While the SPX was up over 2% today, I used a 1% spike to ensure a decent amount of instances. More often than not the market tended to pull back over the next couple of weeks. While the downside edge isn’t huge on a percentage basis, the risk is quite a bit higher than the reward. Overall not encouraging for the bullish case over the next 2 weeks.

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