Thursday, May 10, 2007

FOMC and The Morning After

FOMC and The Morning AfterSocialTwist Tell-a-Friend
From our Virtual Trading Room Transcript
May 10, 2007
about 0549 PDT

Jason_Roney> With expiration next week, the monthly patterns suggest further upside by next friday's open. In fact the SP500 is just 1% from the March 2000 all time high close (1527 in the cash). Given the solid uptrend, there's reason to think we'll hit that level sometime next week. But in the short term, the next few days would seem to offer the bear's best chance for downside. As I'll note in the afternoon discussion, there is often a counter-trend move towards the end of the week prior to expiration week. As well, the market tends to struggle with any follow-through on the day after an FOMC meeting. But a look at the daily patterns suggest an even greater probability of short-term pause.

Jason_Roney> Here's some observations: (1) the SP Futures have 7 consecutive closes above the open price. there have been just 10 occurrences over the last 10 years (in 2007, April 23 and Feb 23 were next day - both closed down) and 7 of those closed below the open; (2) the NDX finished higher for the first 6 days of the calendar month. looking back to 1995, this happened just 3 times before and each time the index finished lower; and finally, (3) the Treasury Bond closed below the prior day's low while the SPX finished above the prior day's high. this happened at the March Meeting and resulted in a flat next day's trade with close below the open.

Jason_Roney> The bottom line is that Thursday's action has a higher probability of finishing below the day's open. The overall trend remains solidly higher into expiration but the next 1-2 days offer more downside than upside risk.


Click here to read the complete transcript of Jason's chat.

Click here to read the Trading the SP Gaps by Jason Roney.



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