Trading FOCM Day

BarroMetrics Views: Trading FOCM Day

I received quite a few e-mails from the Forum-Twitter group that can best be summarised by the post below….

“Ray,

Thank you so much your regular daily update.
Question, the volume yesterday as rather less than normal would this throws out the possibility of more downside?”

The post above followed Tuesday’s Forum-Twitter post when I said:

“The S&P sold off strongly after the strong morning open-gap. In the process, it generated quite a few signals:

a) A bearish engulfing candlestick pattern
b) Strong selling control
c) Above normal end of day volume

They all suggest more downside.

But for me, the sell signals came a shade early

  1. If a H&S is forming: H&S are symmetrical patterns. I’d have taken the sell if the market had hit the 1150 zone. Not only does it satisfy my desire to see symmetry in the pattern, it also would have taken place in the Death Zone.
  2. Tomorrow we have FOCM decision. Rob Hanna’s study for FOCM days shows an overwhelmingly bullish bias for FOCM.”

So let’s have a look at Figure 1 which shows the Normalised Volume for the S&P. The volume for yesterday was normal based on the sample of the past 5 days; but below normal over the larger sample size. The past five days include a pre-CPI, CPI, the surprise Yuan revaluation and pre-FOMC.

Let’s turn to Figure2: The Market Delta Split chart

The Daily Delta shows increased selling control – this is bearish. But The Split Delta shows the same pattern as Monday – a stodgy day that sells off in the last quarter.  The are a couple of things to note about the pattern:

  1. The increased selling control does help the bears;
  2. but the late in the day sell off that is preceded by non-trade facilitation suggests long liquidation rather than new shorts. This is bullish.

To answer the question: I am looking for more upside because of:

Rob’s work and the Split Delta pattern have provided a basis for a long strategy for tonight. The key level that has to hold for me on the long side is the 1079 to 1076; on the short side, key resistance is 1118 to 1120. 2010-06-22-nvol.jpg

FIGURE 1 Normalised Volume

2010-06-22-mds.jpg

FIGURE 2 Split Delta

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