Event Days

Traders are always afraid of uncertainty.  It seems traders prefer bad news to the uncertainty of possible bad news.  It is just the nature of the trading beast.  This fear of uncertainty provides an edge for the trader that can game big important events.  Days such as the FOMC rate announcement, Friday's European stress test, and important nonfarm payroll reports.

On event days, the market more often than not grinds higher during the few hours ahead of the event or in the case of pre-market releases, the day ahead of the event.  Why is this so?  It is because traders are always anticipating, and forward looking.  And traders usually trade from the long side, not the short side.   Thus, if traders are fearful/nervous ahead of an event, it is very likely that they have closed out their position, which usually means they already sold, probably a day ahead.  If traders have already sold, they can no longer sell more unless they go short, and most traders are hesitant to take a short position ahead of an event.  Well, that means they are holding cash and awaiting their next move, which is to buy.  A lot of traders buy after the event.

Thus you see a tendency for Fed days and similar event days to be up days, with near term volatility right after the release due to the uncertainty of how the market reacts but an upward bias afterwards.  That is what happened on Friday around the big event, the European stress test.