Quantum Pranx


FOMC meeting and autumnal equinox conspire to make for an exciting week

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by StockPicker
Posted originally on Sep 20, 2010

GOING INTO THE WEEK ENDING FRIDAY, SEPTEMBER 24, traders brace for two significant events: one real and the other steeped in Wall Street folklore. The Federal Open Market Committee (FOMC) meets today, which could end with a “real” and market-moving policy shift at the Fed. And on Thursday September 23 at 03:09 UTC, the East coast passes through the Autumnal Equinox, a time of “change,” not only the precise time when one season moves on to the next, but in the fabled sense marking a change in season of market sentiment, political tides and social moods.

To be sure, any surprise from the Federal Open Market Committee could surely move markets violently one way or the other. Greenspan was known for popping a few surprises on the markets in his day, but thus far, Bernanke has shown no proclivity to emulate the former chairman of the Fed.

Investors give little chance of a Fed announcement, especially regarding plans to initiate another round of quantitative easing (QEII) – though, early last week Morgan Stanley suggested it would not be surprised if the Fed did make such an announcement. Soon after, however, Morgan retracted its stance, but opened the door for some to this possibility.

Barring any bizarre policy mistake at the FOMC – especially during the weeks leading up to Congressional elections – the Fed is unlikely to deviate from its pattern of first bracing the Street through a series of Fed governor jawboning speeches and interviews before announcing policy changes. Since no Fed governor has been making the rounds on Bloomberg and CNBC lately, no change is expected out of the FOMC on Monday.

A more eclectic event, however, could play a much bigger factor in the markets this week. It’s the Autumnal Equinox “factor.”

Regarded by some as voodoo and superstition nonsense, other traders know better to ignore the most vital market-moving factor: human behavior. And the human behavior typically exhibited in the markets in September is fear.

Not unlike the fear of the Hindenburg Omen (recently turning negative for a elevated risk of a market crash following a couple of positive confirmations), the “Autumnal Equinox is associated with several historical [stock market] topping venues,” said veteran trader and director of floor operations for UBS Financial Services, Art Cashin.

In an interview with King World News on Saturday, September 18, Cashin made reference to the legendary trader and chartist W.D. Gann (1878-1955) and his work on the subject of technical analysis of the markets. Gann — a trader himself — made the observation that major market moves appear to cluster around the time of the Autumnal Equinox.

“If there was ever a day which the market looked vulnerable, throughout the course of history, it was the Autumnal Equinox,” explained Cashin in his reference to Gann’s published work involving geometry, astrology, and ancient mathematics in the prediction of major turning points in financial and commodities markets. The FOMC meeting and the looming fear surrounding the Autumnal Equinox top Cashin’s focus for the week.

But, on the positive side, Cashin said traders are eyeing the reverse-head-and-shoulder pattern at the 1150-60 level on the S&P for a possible breakout to the upside. The long-awaited breakout remains only 25-30 points away from Friday’s close of 1125.59.

First, the S&P must clear technical resistance at 1130, added Cashin. A break above 1130 is expected to trigger a series of short-covering trades – maybe a lot of short covering, according to Cashin, as traders have become accustomed to shorting the S&P at that level for the past three months. “If the bulls manage to break out of the range [above 1130], I think you can inspire a massive short-covering attempt,” Cashin speculates. After that, traders could easily take out 1160 during the scramble to cover their shorts, thereby making way to 1200 on the S&P as the next battleground for the bull and bears to fight, he said.

When asked what he thinks about the direction of stocks this week, Cashin remains cautious. Until the bulls can trigger a breakout above the all-important reverse-head-and-shoulders neckline at 1150-60, he isn’t optimistic. Above the neckline, bulls will force shorts to cover and bears to finally capitulate. “But so far they have been unable to do so,” concludes Cashin.

Other important data scheduled to be released in the week ending September 24, including:
September 21 – CPI and Housing Starts
September 23 – Existing Home Sales
September 24 – Durable Goods Orders and New Home Sales

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