The F_E_D Knee Jerk Effect

Long term members know I always warn of the F_O_M_C policy statement "knee jerk" effect. Wht do I mean by that? The market has an initial knee jerk to the policy statement and it is almost always wrong, whether it reverses the same day or usually at most within 2 days, it's been observed as happening so often you can almost count on it like clockwork, this is why I warned about it several times this week.

If I have time later I'll search for more policy knee jerks, but one date that I found through a quick search that was still within my intraday history looked like this.

This is the S&P-500 on August 9th, 2011, the policy statement came at 2:15. From 2:15 p.m. until 3 p.m. the S&P-500 dropped -3.2% in 45 minutes. From 3 p.m. through the close, it gained +6.3% and by the close the index was up 4.4% on the day. The next day, August 10th, the S&P opened at the previous day's highs and went on to lose -4.5%. 

The point is very simple, be careful with assumptions about initial knee jerk reactions from F_O_M_C policy statements and the market's initial reaction.