Spike in Volatility Indicates Market Surprised by FOMC Announcement

VXO closing out today’s session 9% above the open, an unusually large intraday gain for a Fed day. This marks only the ninth time since 1993 in which the VXO closed up 5%+ from the open on an FOMC announcement day. These represent instances in which the market was truly caught off guard by the Fed’s announcement, and not surprisingly stocks have typically remained under pressure over the longer-term. The last seven occurrences all led to a flat-to-down market two months later…

VXO +5% or More from Open on Fed Day
09/21/11… VXO +9.4%… S&P ??? two months later
12/11/07… VXO +12.0%… S&P -9.9% two months later, MAX DD 14.0%
09/20/05… VXO +6.0%… S&P +0.6% two months later, MAX DD 4.3%
03/22/05… VXO +5.9%… S&P +1.2% two months later, MAX DD 3.0%
01/28/04… VXO +12.1%… S&P -1.7% two months later, MAX DD 3.7%
10/03/00… VXO +4.6%… S&P -5.9% two months later, MAX DD 8.4%
02/05/97… VXO +4.9%… S&P -2.6% two months later, MAX DD 4.4%
02/04/94… VXO +42.8%… S&P -4.6% two months later, MAX DD 7.2%
09/21/93… VXO +8.3%… S&P +3.0% two months later, MAX DD 0.0%

Also worth noting from a longer-term perspective is that after Monday’s big 300-point gain, the Last Hour indicator has retraced approximately half of the 2009-2011 decline. That’s some good progress, but remember that this indicator remains bearish until the retracement is actually complete.

Categories : Archived Intraday Commentary, Intraday Commentary

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