FOMC Meeting Announcement Precedents

fomc-meeting-announcement-october-30-2013

Today the Fed will announce to the world the overnight rate banks will pay each other for borrowing for reserves. Just kidding, everyone knows they’re not going to touch rates. The only thing the market cares about is the carefully crafted commentary on the economy and how it relates to the timing of reducing QE.

Days like this are known for volatility. For the fastest of traders (read: milliseconds), this volatility creates an incredible opportunity. Most people dream of catching the moves that Fed days sometimes create. In the long sample, Fed days have a significant long bias. More recently, Fed days are skewed to the downside. This is hard to believe when the face melting rallies are what our brains cling to (see: September 18, 2013 and September 13, 2012).

Everyone will have an opinion about what the Fed announcement will mean for markets going forward. Their time horizons might be different from yours. As far as the day itself, there is no edge in rationalizing all the “information” and “opinion” surrounding the event. Game theory and auction market theory take over when you have so much brain power and computer cycles concentrated on a single moment in time. Still, days like this are fascinating if only to visualize and understanding the forces behind the buying and selling pressure that creates this volatility. The market is the lead dance partner and you should always watch where she steps.

Here are the most Alpha Curves which outline the most dominant patterns over the last two years:

fomc-meeting-announcement-alpha-curves-october-30-2013

Pattern 1: The slightly negative bias for Fed days emerging as a trend over the last couple years is evident in the most dominant pattern. If you don’t believe the Alpha Curves, go look up the charts one by one.

Pattern 2: Selloff  into the announcement at 2PM and a rally off the lows into new highs.

Pattern 3: Very similar to Pattern 1 except for the positive bias to the early morning session.

Pattern 4: Downside volatility off the announcement recovering into the close.

Conclusions: If the market is selling off into the announcement and a bid doesn’t come in quickly, the market is likely to continue selling pressure into the close. I can see several other edges in this data. What do you see?

For those interested in the statistics, the table is below (it represents a coin flip).

fomc-meeting-announcement-stats-october-30-2013

This data was compiled using www.marketmemory.com (BETA).


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