Odds Favor Gains

Based on a study of price action the day after a Fed rate announcement, the S&P 500 has a 70% chance of a higher close Thursday

By Paul Cherney

I looked at price action for the S&P 500 on the day of a Fed rate announcement and on the day after the announcement (regardless of whether rates were changed or not). These comments are based on S&P 500 end of day closes all the way back to January, 2001. Of the 17 scheduled meetings, on 12 out of those 17 occasions, the S&P 500 closed in one direction (higher or lower) on the day of the announcement and then closed in the opposite direction on the following trading day. If the S&P 500 was up on the day of the FOMC announcement, it closed lower the next day and vice versa. Twelve out of 17 is 70.5% the time, so that puts the odds at about 7 in 10 that the S&P 500 will close higher on Thursday.

The selling that hit the markets on Wednesday afternoon was selective selling, it targeted the big cap names. Why do I say that? At both the Nasdaq and the NYSE, there were more advancers than decliners.

The 10-day exponential moving average of the VIX (market volatility index) was 22.45 very near the close of trading on Wednesday. For any price advance to command a sense of legitimacy, the VIX is going to have to move below 22.45.

Resistance: The S&P 500 has immediate intraday resistance at 984-995 and 993-1003, which makes 993-995 an especially thick area of resistance. Next resistance is 1010-1015.12. The bigger picture of resistance which was established by price action in June, 2002, is that the S&P 500 has a band of resistance at 1008-1041 with a focus of 1020-1031.

The Nasdaq has immediate intraday resistance at 1610-1620, then a shelf at 1623-1632.95. Additional layers of resistance are 1641-1660.47 and 1658-1669, which makes the 1658-1660.47 area especially strong resistance.

Support: The Nasdaq has support at 1603-1584 which should support prices on Thursday.

Immediate intraday support for the S&P 500 is 982-972, There is a broad band of support at 973-947. A retest of the breakout point would mean prints at 965. Odds are 7 in 10 that the S&P will be higher as of the close on Thursday.

Cherney is chief maket analyst for Standard & Poor's

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