Stock indexes view Fed as “non-event”

WEDNESDAY'S MARKET WRAP-UP

Market Snapshot for November 2, 2011 (5:36 a.m. ET):

Closing Prices: DOW 11,836.04 (+178.08, +1.53%), S&P 500 1,237.90 (+19.62, +1.61%), NASDAQ 2,639.98 (+33.02, +1.27%), Nikkei 225 8,640.42 (-195.10, -2.21), DAX 5,965.63 (+131.12, +2.25%), FTSE 5,484.10 (+62.53, +1.15%)

OIL 92.51, GOLD 1,729.60, SILVER 34.27

EURO 1.3746, YEN 78.06, BRITISH POUND 1.5949, U.S. DOLLAR INDEX 77.18

Market Reacts Little to FOMC Policy Statement

Wednesday was a "Fed Day," but you wouldn't know it by merely looking at the charts. Despite the strong post-announcement moves of the last meeting, this time around the market reacted to the Fed's latest policy statement as if it were a non-event. Unsurprisingly, the FOMC kept its target interest rate at 0.00-0.25%. Unlike last time, however, there were no surprise statements to accompany this news. Fed chairman Ben Bernanke reaffirmed the Fed's commitment to do everything within its power to help the struggling economy and that it was willing to take "further action" if necessary.

The market did pull higher in the morning, which is typical of Fed-day action, but Wednesday's session was a particularly difficult one for index traders. The morning's price action was fairly smooth on the five-minute time frame. The opening gap filled to some extent before finding support around 10:00 a.m. ET and turning around to new highs by 11:00 a.m. ET, but after that point things became quite sloppy. A momentum reversal took place as the morning wound down and prices began to slip. They also became more volatile. Stronger overlap from bar to bar on the five-minute time frame spoke to underlying uncertainty and made market timing more difficult. Interestingly, volume did not drop off substantially compared to the rest of the morning despite the looming Fed decision.

Dow Jones Industrial Average (Figure 1)

The market turned around in the afternoon following the 14:15 ET announcement, but trade remained choppy with a greater degree of price overlap. Congestion along the five-minute 20-period moving averages created a buy setup at 14:30 ET which continued for the next hour before correcting off the upper end of the 15-minute trading channel into the close. This correction continued afterhours and took the index futures back to the lower end of the channel by midnight.

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