Tuesday, August 5, 2008

When The S&P Is Oversold Going Into A Fed Day

The S&P fell on Monday for the third consecutive day. There are some short-term price indicators reaching oversold levels at this point. More often than not, when the market goes into a Fed meeting and is short-term oversold, the result is a bounce. For tonight’s test I used the 2-period RSI. I looked at any time since 1978 the S&P 500 closed with a 2-period RSI reading below 20 the day before a scheduled Fed meeting. (I did not include unscheduled Fed meetings, since they all pretty much pop the market.) Summary results of all qualifying Fed days are shown below. They assume buying at the close the day before the Fed meeting and selling on the close the day of the Fed meeting. (Based on $100,000 per trade in the S&P cash index.):



Based on this, there appears to be a small edge to the upside for Tuesday.

8 comments:

Martin said...

I wonder if the Fed action (cut, raise) makes a difference.

MarketSci.com said...

Rob - I want to do a little follow up work to your post. You have a handy cheat sheet for the date of all scheduled (and if possible, unscheduled) fed meets?

Thanks,
ms

Rob Hanna said...

I copied it all down from the Fed site a while back. I don't have a cheat sheet. It's all embedded in Tradesation code at this point. The link below will get you back to 2003. From there you'll need to click on "transcripts and other historic materials". That will let you go back to 1978 and look up everything by year.

http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

Kevin said...

marketsci.com, try this:

http://tinyurl.com/FOMCmeetings

MarketSci.com said...

Kevin and Rob thanks. One last question - I'm not a fundamentals guy - I'm a numbers guy, so apologies in advance if this is a dumb question, but on a multiday meet, what day would you count when looking at the market's reaction? (and why?)

Rob Hanna said...

Day 2. It's the day they release the statement and announce any policy changes. No news comes out day 1.

MarketSci.com said...

thanks folks

MarketSci.com said...

Rob - I posted the afformentioned follow up:
http://marketsci.wordpress.com/2008/08/06/market-reaction-to-fed-days/

Love the blog (good to find other numbers-guys)!

ms