Read our latest interview with Damien Hoffman of WallStCheatSheet.com regarding market manipulation (hosted at GreenFaucet.com).

Today’s final price action vs. the two year FOMC Time Profile:

They won’t all be this close, but we’re looking forward to Sep 23 09. 

Full commentary in tomorrow’s report.

1:29 pm EDT:  Most of the trading recommendations we’ve seen today note the bullish tendency of FOMC day.  That means day and swing traders will be covering after the announcement and into tomorrow.  If tomorrow’s close is above today’s high, we will consider this real buying strength.  Otherwise, it was just a high probability short term trade that everyone jumped in on.  Given the breadth of knowledge of this trade, should the FOMC news be bearish (unlikely, but possible), the day/swing longs will be covering en masse.  Longs could get out in the first couple of minutes, or hold out for the 2:45 to 3:00 pm potential reversal period.

Remember, the release has been late the entire year, by up to 5 minutes.  From 2:14 pm to the Announcement release will be a highly illiquid time and easy to hit close stops.

The FOMC Time Profile pattern from this morning’s report has held perfectly, so far.  Expected profit taking at the confluence of daily (Globex) R1, daily (day-session-only) R2, weekly R2 and weak point of control for yesterday in the area of 1005.75 to 1006.75.  Next potential reversal area is at yesterday’s overnight high of 1010.75, then 1016.00 to 1018.75.  Things should calm down a bit into the 1 pm 10 Yr auction, but that does not preculde higher highs.  Potential long areas are 1001.00 and 998.50.  We would not be top pickers here.

The Precise Take – 10 Yr Auction and FOMC Announcement – Statistically bullish bias today

Slightly abbreviated commentary as we have been focusing on chart analysis and statistical edges for today.

Yesterday:  Down, but not critically.

Today’s News:  See headline above.

Time Profile:  We posted an important update post close yesterday (free registration here).  Time Profile charts are posted on page 2.  An excerpt:

There is a very consistent pattern on FOMC days that sees a strong open with gains trailing off into noon, then a dip into the 30 minutes just before the 2:15 pm release, an expected volatile 15 minutes into 2:30 pm tending to be net up, and continued gains into 3:00 pm.  In the last 3 announcements that occurred in since the March rally began (including the QE one on Mar 18 09), the strongest gains have been made in the first 15 minutes into 2:30 pm, with gains trailing off into 3:00 pm.  The bullish edge tends to disappear into 3:30 pm (with the last 3 Announcements reversing much of the net gains).  Then, a moderately bullish to neutral close.  In the last 3 Announcements, the 3:45 to 4:00 pm period has been very strong, but on average over the last two years, this period has been a big net loser. Bottom line is that FOMC days usually create gains, with the bullish edge conservatively over at 3:00 pm. 

Some further thoughts are: we presented the Time Profile for the last two years, which has been an entirely accommodative period, meaning that the FOMC was releasing bullish news to the stock market.  Accordingly, we ran a Time Profile for the tightening (bearish for equities) period between June 04 and June 06 (not pictured).  We found there is still a bullish bias in the opening, which trails off after 11:00 am, resurfaces slightly into 2:15 pm, then becomes negative.  There tends to be a net up period from 2:45 pm to 3:00 pm that, if the FOMC were to release bearish news today, would probably be the ideal exit for longs or initial entry for shorts because the 3:00 pm to 3:15 pm period is very strong net down, with further net down periods trailing off into the close.

We have also run a Time Profile for the last two years (n=17) for the post FOMC day, and have found that it has a generally bearish bias, with a slight bullish bias for the first hour.  For the period covering the March rally (n=3), there has been a stronger bullish bias for the first hour, with a slightly bearish bias for most of the rest of the day.  This seems logical because most FOMC days are big range days, which tend to be consolidated the following day.

Big Picture:  We expect that by tomorrow we will be able to more clearly map the direction of the markets in the medium term.  Looking to the leaders, gold made a new immaterial low overnight, but the EuroYen made material new lows and reversed sharply, which is slightly bullish for equities.  The 30 and 10 Year Treasury futures are up marginally.  All in all, not a clear picture, which is not surprising.  As we wrote in another update yesterday, if we have perfect 10 Year and 30 Year auctions this week, it is risky, but possible for Bernanke to let QE expire and not materially change the wording of the FOMC statement, and still have the Treasury market be in decent shape.

Trading Today:  There is a bullish edge on FOMC days, as stated above, but there are no guarantees.  Accordingly, longs will need to break above…

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