Fed meeting causes barely a ripple in E-mini market

Good day! First off: WOW! On Wednesday we received the latest FOMC announcement regarding federal interest rates and the corresponding policy statement by the Federal Reserve. The reaction to the news was by far the most disinterested reaction I think I've ever seen. More eyes were focusing on earnings and the latest economic data than on any move made by the Fed. Even heading into the day's announcement, there was very little fanfare and even I didn't give it more than a passing mention this week.

This has been a common trend over the past year, however. Although there have been a few notable exceptions, such as with the last announced round of quantitative easing, the Fed's interest rate announcements have become quite repetitive with no real surprises. If it hadn't been for the dramatically decreased volume mid-day on Wednesday, anyone glancing at the 30-minute intraday charts wouldn't have noticed that a typically major market-moving moment had occurred on Wednesday afternoon.

The Fed reaffirmed its stance to keep interest rates at record lows and also its plans to complete the $600 billion in QE, stating that the recovery thus far has been "insufficient to bring about a significant improvement in labor market conditions." The decision was unanimous. The market's response was not. The bulls and the bears were fairly evenly matched throughout the remainder of the day.

Dow Jones Industrial Average (Figure 1)

Although the response to the Fed was minor, there was still an underlying price bias in favor of further selling. This was not as much a result of the Fed as it was the action that took place heading into the announcement. This bias began in premarket trade. After a strong rally into Tuesday's closing bell, the index futures continued to push higher, but at a much slower rate. This shift in momentum created a short bias ahead of the opening bell on Wednesday. A smaller Momentum ReversalTM within the larger momentum shift triggered a sell in the indices futures coming off 7:00 a.m. ET highs. This selloff lasted past the opening bell and into 10:00 a.m. ET. This is when the latest housing data was released.

December's new home sales data was a welcome relief for the market. New home sales on single-family homes for the final month of 2010 hit 8-month highs for an annual rate of 329,000 last month from a revised 280,000 units the month before. This was a 17.5% increase. Nevertheless, compared to 2009, sales are still down 7.6%, so the news can still be taken with a grain of salt. The bulls didn't care.

S&P 500 (Figure 2)

The market rallied sharply before running into resistance with the 10:15 ET correction period. This was the level for premarket highs in the Dow futures and an equal move resistance in the Nasdaq as compared to Monday's morning move (shown in blue). The majority of the rally took place between 10:00-10:30 a.m. ET. After an initial high, a slightly higher high formed on the 2 minute charts (also seen on the 5 minute). This created a bull trap and the market quickly took back a large chunk of the morning gains, particularly in the Dow.

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