What the Heck Happened to the Fed Rally?

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By Doug Short, Advisor Perspectives:

This morning many of us wondered whether yesterday’s Fed rally on the release of the FOMC minutes (which had a definite dovish tilt) would see a follow through or fade. The answer is now in. The S&P 500 plunged 2.07%, erasing all of yesterday’s gain and then some. The popular financial press is filled with the usual array of opinions, as the battle of the bulls and bears heats up. Today’s selloff was the fourth largest daily decline of 2014.

The yield on the 10-year Note ended at 2.34%, down only 1 bp from yesterday’s close and tied with its 2014 closing low hit on two previous occasions.

Here is a 15-minute chart of the past five sessions.

Here is a daily chart of the SPY ETF. Today’s rout came on extemely high volume, double its 50-day moving average and higher than yesterday’s Fed-inspired rally.

A Perspective on Drawdowns

The chart below incorporates a percent-off-high calculation to illustrate the drawdowns greater than 5% since the trough in 2009.

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For a longer-term perspective, here is a pair of charts based on daily closes starting with the all-time high prior to the Great Recession.

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By Doug Short, Advisor Perspectives

Also by Doug Short: “Lies, Damn Lies, and Statistics.” Read…. How to Obscure one of the Biggest Economic Problems in the US

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