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A Breakout Would Be Good... Right?


False move higher is a real possibility.

The last 6 times we had an FOMC meeting, the S&P 500 typically responded in joyous fashion, closing in positive territory 5 times, with an overall average of +2.4%.

But a cruel fact of life is that the hangover is never as much fun as the party, and over the next 2 days, the S&P was positive only 1 time out of 6, with an overall average of -1.6%. It would average -2.8% without including that one winning trade, which happened to give back all its gains and then some within 4 more sessions.

The futures have gapped up by +1% or more the morning of a scheduled meeting only twice before, on March 18, 2008 and January 28, 2009. Both times, the S&P managed to add an additional +1% or more during the day. But the harder you party, the worse the hangover (usually), and the next day the S&P was lower by more than -2.5% both times.

Even if we relax the gap and only look for +0.5% openings, the pattern is pretty much the same. The S&P closed higher than the open 9 out of 10 times by an average of +1.2%. But by two days later, the S&P showed a positive return only 1 out of the 10 times with an average of -1.7% (and that one positive outlier gave back its gains the following day).

I'm wary of a big push higher today, watching for the possibility of a false breakout.
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