TRADING THE ODDS

On Thursday’s session market internals were heavily lopsided on the downside, but nevertheless the ES E-MINI S&P 500 managed to close in the upper half of it’s daily trading range the fifth day in a row.

The ES E-MINI S&P 500 left an unfilled opening gap on the downside of -0.70%, Puts traded on an uptick (regularly purchased) outnumbered Puts traded on an downtick (regularly sold) – the first occurrence during the last 12 sessions, and only happens on approximately one out of every ten sessions -, Calls traded on a downtick (regularly sold) outnumbered Calls traded on an uptick (regularly bought) by a factor of 1.75 – the first occurrence during the last 13 sessions -, and more than 85% of all optionable stocks penetrated their previous session’s low.

_________________________

The following setups (among others) were triggered on Thursday’s close:

No.	INDEX	SETUPS TRIGGERED
1	E-MINI S&P 500	closed lower at least -1.0%, and Calls traded on a downtick outnumbered Calls traded on an uptick by a factor of 1.75
2	E-MINI S&P 500	closed lower at least -1.0%, and Puts traded on an uptick outnumbered Puts traded on an downtick
3	E-MINI S&P 500	closed lower at least -1.0%, and more than 85% of all optionable stocks penetrated their previous session’s intraday low
4	E-MINI S&P 500	closed lower at least -1.0%, and optionable stocks penetrating their previous session’s intraday low outnumbered those penetrating their previous session’s high by a factor > 8.5
5	E-MINI S&P 500	left an unfilled opening gap down of at least -0.70%

* ) : -

( * the setup doesn’t provide a statistically significant edge on any side of the market)

Table I shows the ES E-MINI S&P 500 performance on the close (since 01/01/1990) on the next session (in this event Friday, November 20) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

Probabilities and odds are clearly tilt in favor of a positive performance (close) on the then following session, and the respective t-score regularly exceeds the +1.645 mark for statistical significance, means there is a low probability that the positive performance (amd out-performance of the market) occurred by chance only.

In addition, the median trade over the course of the then following 5 sessions is positive as well, partly significantly exceeding the respective at-any-time median change over the course of the then following 5 sessions (and probabilities for a higher close 2, 3, 4 and 5 sessions later exceed the respective at-any-time probability for a higher index close 2 – 5 sessions later).

________________________________

Bottom line:

At least based on historical probabilities and odds and the market’s regular performance on the session after those setups listed above had been triggered on close of the previous trading day, the outlook concerning the ES E-MINI S&P 500′ performance on close of Friday, November 20 is positive, and with market internals heavily lopsided on the downside on Thursday’s session, downside potential on Friday’s seems to be limited.

A favorable short-term opportunity on the long side would be provided in the event of any pre-opening weakness on Friday’s GLOBEX session targeting a higher open and probably a higher close as well.

Successful trading,
Frank

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Summary of potentially tradable edges for Friday – November 20, 2009

DATE	TIME	WHAT	ACTION	WHY	ENTRY	STOP 1)	Pos. Size 2) 3)
11/20/2009		E-MINI S&P 500	LONG	see setups above	-	-	-

1)	the STOP may represent a buy or a sell stop ; on a long position a STOP above the ENTRY will represent a limit order (profit target achieved), a STOP below the ENTRY a stop loss order ; the inverse applies to a short position respectively xx
2)	For position sizing, optimal f (by Ralph Vince) is utilized; optimal f = ([( win/loss ratio + 1 ) * probability of a winning trade ] – 1 ) / ( win/loss ratio ) ; win/loss ratio = avg. gain on a winning trade / avg. loss on a losing trade ; /% simplified version ; Pos. Size (in $) = MAX [Intraday / Overnight Initial Margin ; Maximum Losing Trade (in $) / optimal f ] ; Margin requirements: ES E-MINI S&P 500 (ES): Intraday Initial Margin = $2,250 ; Overnight Initial Margin = $5,625 ; ES E-MINI Nasdaq 100 (NQ): Intraday Initial Margin = $1,750 ; Overnight Initial Margin = $3,500 ; Russel 2000 Mini Futures (TF): Intraday Initial Margin = $2,500 ; Overnight Initial Margin = $5,000) xx
3)	Position size in units per $xxx of marginable equity; if the E-MINI S&P 500, the E-MINI NASDAQ 100 or Russel 2000 Mini Futures are utilized, the number in brackets equates to the number of contracts, otherwise to the number of leveraged Exchange-Traded Funds (ETFs) of 300% of the (inverse) performance of the underlying index, assumed a fixed marginable equity of $100,000

________________________________

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xx

Disclaimer: No positions in the securities mentioned in this post at time of writing (but short volatility).

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

On Friday’s session the ES E-MINI S&P 500 managed a small gain on the close, but did never seriously challenge Thursday’s intraday high.

But there was some remarkable weakness beneath the surface: Despite the fact that almost all US major market indices (S&P 500, ES E-MINI S&P 500, Nasdaq 100, Dow Jones, except the Russel 2000) posted a higher low (than the previous session’s low), the majority of stocks listed in the respective indices did not: more than 55% of S&P 500 stocks and more than 60% of all optionable stocks penetrated their previous session’s low, which is regularly a reliable indication for some weakness beneath the surface and has – with respect to historical occurrences – led more often than not to an above-average pre-opening weakness, a weak open and/or limited upside potential (potential magnitude of change on the intraday high) on the then following (GLOBEX) session (see below).

Some other remarkable peculiarities: The Nasdaq 100 out-performed the S&P 500 the fourth day in a row, and the SOX Semiconductor Index out-performed the S&P 500 the fifth day in a row, while the BKX Bank Index under-performed the S&P 500 by a wide margin of almost 1.0% the second day in a row.

Regime shift: On November 5, 6 and 9 the ES E-MINI S&P 500 posted it’s intraday low always during the first hour of the session while the intraday high was regularly made during the final hour of the session. On November 10, 11 and 12 the ES E-MINI S&P 500 posted it’s intraday high always during the first hour of the session while the intraday low was made at later stages of the session (during the first half – but after the first hour – of the session on November 10, during the second half of the session – but before the final hour – on November 11, and during the final hour of the session on November 12).

_________________________

The following setups (among others) were triggered on Friday’s close:

No.	INDEX	SETUPS TRIGGERED
1	S&P 500	closed higher at least +0.50%, but Calls traded on a downtick outnumbered Calls traded on an uptick
2	S&P 500	posted a higher low and closed higher at least +0.50%, but more than 50% of S&P 500 stocks penetrated their previous session’s low
3	S&P 500	posted a higher low and closed higher at least +0.50%, but more than 60% of all optionable stocks penetrated their previous session’s low
4	E-MINI S&P 500	posted a positive first hour and a positive last hour, but negative mid session (between the end of the first and the start of the last hour) on three consecutive sessions
5	E-MINI S&P 500	was trading above the previous session’s close at the end of the first hour and during the last hour on three consecutive sessions

* ) : -

( * the setup doesn’t provide a statistically significant edge on any side of the market)

Table I below shows the ES E-MINI S&P 500’s intraday performance (since 01/06/2001) concerning the open, the intraday low, the end of the first hour of the session in comparison to the previous session’s close, the pre-open (GLOBEX) high and the pre-open (GLOBEX) low on those sessions where any of setups S2, S3 or S4 had been triggered on close of the previous trading day in the past.

It is interesting to note that – since 01/06/2001 and with respect to the then following session (in this event on Monday, November 16) – the ES E-MINI S&P 500

• opened lower on 2 out of every 3 occurrences,
• posted a median (not average) intraday low of -0.94%,
• was trading below the previous session’s close at the end of the first hour on 2 out of every 3 occurrences, and greater than +0.30% on only 2 out of 28 occurrences,
• was trading lower at least -0.50% below the previous session’s close on the then following GLOBEX session on 10 out of the last 11 occurrences.

Table II below shows the ES E-MINI S&P 500’s intraday performance (since 01/06/2001) concerning the open, the intraday low, the end of the first hour of the session in comparison to the previous session’s close, the pre-open (GLOBEX) high and the pre-open (GLOBEX) low on those sessions where setup  S4 had been triggered on close of the previous trading day in the past.

Although 11 occurrences since 01/01/1990 is nothing to read anything statistically significant into it and even more nothing to bet the farm on, it at least confirms the negative forecast not only with respect to the expected weakness before or on Monday’s open, but with respect to Monday’s close as well (although a setup like three consecutive sessions with a positive first and last hour, but negative middle part of the session is more a statistical anomaly than anything to read something meaningful into into, quite different from setups S2 and S3 where the index posted a higher low, but the majority of stocks did not for a remarkable negative divergence).

In addition:

• with setup S1 triggered on close of the previous trading day, on 10 out of the last 20 occurrences (50%) did the ES E-MINI S&P 500 post it’s intraday low during the first hour of the then following session, while on 12 out of the last 20 occurrences did the ES E-MINI S&P 500 post it’s intraday high in the second half of the then following session,
• the ES E-MINI S&P 500 posted it’s intraday low during the first hour of the session on 16 out of the last 27 Monday’s (60%) – significantly skewed in favor of the first hour of the session -, and posted it’s intraday low before it posted it’s intraday high on 19 out of the last 27 Monday’s (70%).

So there is a good chance that Monday’s intraday low will probably be posted early during the regular session and probably before the high, for a low(er) probability that the open short position (if not already closed before the open) will be stopped out before it could hopefully be closed for a profit.

________________________________

Bottom line:

At least based on historical probabilities and odds and the market’s regular performance on the session after those setups listed above had been triggered on close of the previous trading day, the outlook concerning the ES E-MINI S&P 500′ performance before or on the open on Monday, November 16 is negative, and additionally upside potential seems to be limited (therefore I went short on Friday’s close targeting a pre-opening quote at least -0.50% below Friday’s close).

A favorable short-term opportunity on the short side would be provided in the event of any pre-opening strength on Monday’s GLOBEX session (beginning at Sunday 06:00 PM EST) targeting a lower open and probably some wekaness during the session as well.

Successful trading,
Frank

________________________________

Summary of potentially tradable edges for Monday – November 16, 2009

DATE	TIME	WHAT	ACTION	WHY	ENTRY	STOP 1)	Pos. Size 2) 3)
11/13/2009	04:15 PM	E-MINI S&P 500	SHORT	see setups above	1091.50	-	(-18) $5,625

1)	the STOP may represent a buy or a sell stop ; on a long position a STOP above the ENTRY will represent a limit order (profit target achieved), a STOP below the ENTRY a stop loss order ; the inverse applies to a short position respectively xx
2)	For position sizing, optimal f (by Ralph Vince) is utilized; optimal f = ([( win/loss ratio + 1 ) * probability of a winning trade ] – 1 ) / ( win/loss ratio ) ; win/loss ratio = avg. gain on a winning trade / avg. loss on a losing trade ; /% simplified version ; Pos. Size (in $) = MAX [Intraday / Overnight Initial Margin ; Maximum Losing Trade (in $) / optimal f ] ; Margin requirements: ES E-MINI S&P 500 (ES): Intraday Initial Margin = $2,250 ; Overnight Initial Margin = $5,625 ; ES E-MINI Nasdaq 100 (NQ): Intraday Initial Margin = $1,750 ; Overnight Initial Margin = $3,500 ; Russel 2000 Mini Futures (TF): Intraday Initial Margin = $2,500 ; Overnight Initial Margin = $5,000) xx
3)	Position size in units per $xxx of marginable equity; if the E-MINI S&P 500, the E-MINI NASDAQ 100 or Russel 2000 Mini Futures are utilized, the number in brackets equates to the number of contracts, otherwise to the number of leveraged Exchange-Traded Funds (ETFs) of 300% of the (inverse) performance of the underlying index, assumed a fixed marginable equity of $100,000

________________________________

If you might want to be instantly notified about what’s happening in the markets and at TRADING THE ODDS, I encourage you to subscribe to my RSS Feed or Email Feed, and (or) follow me on Twitter.

xx

Disclaimer: Short ES E-MINI S&P 500 at time of writing.

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

A short note: Due to some private and business matters, from now on I’ll probably not be able to keep on publishing a post on a daily basis (at least not within one or two hours after the close, Twitter updates remain unaffected).

_________________________

On Wednesday’s session the ES E-MINI S&P 500 as well as the NQ E-MINI NASDAQ 100 closed higher on the eighth consecutive session (close at 04:15 PM EST), and the ES E-MINI S&P 500 posted it’s sixth consecutive session with a higher high, the seventh consecutive session with a higher low, and it’s sixth consecutive session with a close at or above the previous session’s high .

But after four sessions with a close above the open, the ES E-MINI S&P 500 today closed below the open and in the lower half of today’s trading range as well (after three out of four sessions with a close in the top quartile of the daily trading range).

_________________________

The following setups (among others) were triggered on Wednesday’s close:

No.	INDEX	SETUPS TRIGGERED
1	E-MINI S&P 500	closed higher on the eighth consecutive session
2	E-MINI S&P 500	posted a higher high on the sixth consecutive session
3	E-MINI S&P 500	posted a higher low on the seventh consecutive session
4	E-MINI S&P 500	closed at or above the previous session’s high on the sixth consecutive session
5	E-MINI S&P 500	posted a higher high and a higher low at least +0.50% above the previous high/low, but closed below the open

* ) : -

( * the setup doesn’t provide a statistically significant edge on any side of the market)

Table I shows the ES E-MINI S&P 500 performance on the close (since 01/01/1990) on the next session (in this event Thursday, November 12) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

Since 01/01/1990 there were 5 occurrences where the ES E-MINI S&P 500 had closed higher eigth sessions in a row, and the ES E-MINI S&P 500 up to now always opened and closed lower on the then following session (in this event on Thursday, November 12). Although 5 occurrences only is too small a sample size to read anything statistically significant into it and nothing to bet the farm on, at least setup S5 (the black candle – a close below th open – after a higher high and higher low) shows a statistically significant tendency for some intraday weakness on the then following session as well.

Table II below shows the ES E-MINI S&P 500’s intraday performance (since 01/01/1990) concerning the open, the intraday high, the intraday low, the close and the end of the first hour of the session in comparison to the previous session’s close on those sessions wherewhere the ES E-MINI S&P 500 had closed higher eigth sessions in a row in the past.

________________________________

Bottom line:

At least based on historical probabilities and odds and the market’s regular performance on the session after those setups listed above had been triggered on close of the previous trading day, the outlook concerning the ES E-MINI S&P 500′ performance on Thursday, November 12 is negative.

A favorable short-term opportunity on the short side would be provided in the event of any pre-opening strength targeting a lower open and probably a lower close as well.

Successful trading,
Frank

________________________________

Summary of potentially tradable edges for Monday – November 9, 2009

DATE	TIME	WHAT	ACTION	WHY	ENTRY	STOP 1)	Pos. Size 2) 3)
11/11/2009	04:15 PM	E-MINI S&P 500	SHORT	see setup S1 above	1096.25	-	(-18) $5,625

1)	the STOP may represent a buy or a sell stop ; on a long position a STOP above the ENTRY will represent a limit order (profit target achieved), a STOP below the ENTRY a stop loss order ; the inverse applies to a short position respectively xx
2)	For position sizing, optimal f (by Ralph Vince) is utilized; optimal f = ([( win/loss ratio + 1 ) * probability of a winning trade ] – 1 ) / ( win/loss ratio ) ; win/loss ratio = avg. gain on a winning trade / avg. loss on a losing trade ; /% simplified version ; Pos. Size (in $) = MAX [Intraday / Overnight Initial Margin ; Maximum Losing Trade (in $) / optimal f ] ; Margin requirements: ES E-MINI S&P 500 (ES): Intraday Initial Margin = $2,250 ; Overnight Initial Margin = $5,625 ; ES E-MINI Nasdaq 100 (NQ): Intraday Initial Margin = $1,750 ; Overnight Initial Margin = $3,500 ; Russel 2000 Mini Futures (TF): Intraday Initial Margin = $2,500 ; Overnight Initial Margin = $5,000) xx
3)	Position size in units per $xxx of marginable equity; if the E-MINI S&P 500, the E-MINI NASDAQ 100 or Russel 2000 Mini Futures are utilized, the number in brackets equates to the number of contracts, otherwise to the number of leveraged Exchange-Traded Funds (ETFs) of 300% of the (inverse) performance of the underlying index, assumed a fixed marginable equity of $100,000

________________________________

If you might want to be instantly notified about what’s happening in the markets and at TRADING THE ODDS, I encourage you to subscribe to my RSS Feed or Email Feed, and (or) follow me on Twitter.

xx

Disclaimer: Short ES E-MINI S&P 500 at time of writing.

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

A couple of minutes ago I noticed that there was another setup triggered on Friday’s close, in particular confirming the negative outlook with respect to the first part of Monday’s session (see my posting TRADING THE ODDS on Monday – November 9, 2009 ).

On Friday the ES E-MINI S&P 500 not only closed higher the fifth day in a row, the  ES E-MINI S&P 500 closed at least +0.90% above the open on a second day in a row as well (55 occurrences since 01/06/2001).

Table I below shows the ES E-MINI S&P 500’s intraday performance (since 01/06/2001) concerning the open, the intraday low, the end of the first hour of the session in comparison to the previous session’s close, the start of the last hour of the session in comparison to the previous session’s close, and the close on those sessions immediately following a session where the ES E-MINI S&P 500 had closed higher and at least +0.90% above the open on a back-to-back session in the past (in this event on Monday, November 9). A lot of red …

It is interesting to note that – since 01/06/2001 and with respect to the then following session (in this event on Monday, November 9) – the ES E-MINI S&P 500

• opened lower on 2 out of every 3 occurrences (and on 17 out of the last 21 occurrences),
• was trading below the previous session’s close at the end of the first hour on 4 out of every 5 occurrences, and lower on 19 out of the last 21 occurrences,
• was trading below the previous session’s close at the start of the last hour on 2 out of every 3 occurrences, and lower on 17 out of the last 21 occurrences,
• closed lower on 37 out of those 55 occurrences.

The ES E-MINI S&P 500′ statistically significant (the respective t-score exceeds the -1.645 mark on the downside) under-performance during all stages of the then following session confirms the bearish case at least with respect to the first part of Monday’s session (including the pre-opening session on GLOBEX).

________________________________

Bottom line:

At least based on historical probabilities and odds and the market’s regular recent performance on the session after those setups listed above had been triggered on close of the previous trading day, the outlook concerning the ES E-MINI S&P 500′ performance at least until the end of the first hour of Monday’s session is negative, but probably with respect to a lower close as well.

A favorable short-term opportunity on the short side would be provided in the event of any pre-opening strength targeting a lower open or weakness during the first part of Monday’s session.

Successful trading,
Frank

________________________________

Summary of potentially tradable edges for Monday – November 9, 2009

DATE	TIME	WHAT	ACTION	WHY	ENTRY	STOP 1)	Pos. Size 2) 3)
11/06/2009	04:00 PM	E-MINI S&P 500	SHORT	see setup S2/S3 above	1067.00	1075.00	(-18) $5,625

1)	the STOP may represent a buy or a sell stop ; on a long position a STOP above the ENTRY will represent a limit order (profit target achieved), a STOP below the ENTRY a stop loss order ; the inverse applies to a short position respectively xx
2)	For position sizing, optimal f (by Ralph Vince) is utilized; optimal f = ([( win/loss ratio + 1 ) * probability of a winning trade ] – 1 ) / ( win/loss ratio ) ; win/loss ratio = avg. gain on a winning trade / avg. loss on a losing trade ; /% simplified version ; Pos. Size (in $) = MAX [Intraday / Overnight Initial Margin ; Maximum Losing Trade (in $) / optimal f ] ; Margin requirements: ES E-MINI S&P 500 (ES): Intraday Initial Margin = $2,250 ; Overnight Initial Margin = $5,625 ; ES E-MINI Nasdaq 100 (NQ): Intraday Initial Margin = $1,750 ; Overnight Initial Margin = $3,500 ; Russel 2000 Mini Futures (TF): Intraday Initial Margin = $2,500 ; Overnight Initial Margin = $5,000) xx
3)	Position size in units per $xxx of marginable equity; if the E-MINI S&P 500, the E-MINI NASDAQ 100 or Russel 2000 Mini Futures are utilized, the number in brackets equates to the number of contracts, otherwise to the number of leveraged Exchange-Traded Funds (ETFs) of 300% of the (inverse) performance of the underlying index, assumed a fixed marginable equity of $100,000

________________________________

If you might want to be instantly notified about what’s happening in the markets and at TRADING THE ODDS, I encourage you to subscribe to my RSS Feed or Email Feed, and (or) follow me on Twitter.

xx

Disclaimer: Short ES E-MINI S&P 500 and long volatility at time of writing.

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

Friday marked the second consecutive session where the ES E-MINI S&P 500 showed the expected weakness already during the GLOBEX session (posting a pre-opening low of at least -0.75%), but recouped all of it’s pre-opening and/or intraday losses and managed a gain on the close. But this time to a far less spectacular extent than on Thursday’s session where the ES E-MINI S&P 500 had left an unfilled opening gap up and had closed sharply higher in excess of 1.0%+.

In addition, the S&P 500 and the NASDAQ 100 closed higher the fifth day in a row, while the VIX CBOE Volatility Index closed lower at least -2.50% the fifth day in a row.

_________________________

The following setups (among others) were triggered on Fiday’s close:

No.	INDEX	SETUPS TRIGGERED
1	E-MINI S&P 500	closed higher on the fifth consecutive session
2	E-MINI S&P 500	posted a pre-opening low of at least -0.75% below the previous session’s close, but closed higher on the day on two consecutive sessions
3	E-MINI S&P 500	the S&P 500 closed higher on a session where the Russel 2000, the Semiconductor Index and the Banking Index all closed lower
4	E-MINI S&P 500	…
5	E-MINI S&P 500	…

* ) : -

( * the setup doesn’t provide a statistically significant edge on any side of the market)

Unfortunately none of those setups listed above shows a statistically significant edge on any side of the market with respect to the next (!) session’s close (in this event on Monday, November 9). But whenever setup S2 (pre-opening weakness on back-to-back sessions) or S3 (divergence between large caps and small caps) had been triggered in the (recent) past, the ES E-MINI S&P 500 closed regularly at a lower level at least once over the course of the then following five sessions.

Table I below shows the ES E-MINI S&P 500’s performance (since 11/26/2004) over the course of the then following five sessions whenever setup S2 or S3 had been triggered in the (recent) past.

It is interesting to note that the ES E-MINI S&P 500 closed at a lower level over the course of the then following five sessions at least once on 36 out of 38 occurrences for a probability of 92.11%, significantly above the at-any-time probability of 72.53% for at least one lower close over the course of the then following five sessions. And even on those two sessions – marked with an asterisk – where the market did not close on a lower level, the ES E-MINI S&P 500 did not gain more than +0.60% on the close (in comparison to the trigger day’s close) three session later. And with respect to setup S2 (9 occurrences since 2001), the ES E-MINI S&P 500 posted a lower close three sessions later at the latest on all 9 occurrences.

But with setups S2 and S3 triggered on close of the previous session, the ES E-MINI S&P 500 was regularly trading at a lower level at least until the end of the first hour of the then following session (in this event on Monday, November 9) as well.

Table II below shows the ES E-MINI S&P 500’s intraday performance (since 11/29/2004) concerning the open, the intraday low, the end of the first hour of the session in comparison to the previous session’s close, the close, the pre-opening high (on GLOBEX) and the pre-opening low (on GLOBEX) on those sessions where setups S2 or S3 had been triggered on close of the previous session.

It is interesting to note that – since 11/29/2004 and with respect to the then following session (in this event on Monday, November 9) – the ES E-MINI S&P 500

• opened lower on 2 out of every 3 occurrences, and never opened up more than +0.67%,
• was trading below the previous session’s close at the end of the first hour on 2 out of every 3 occurrences, and up more than +0.50% on only three occurrences, but lower than -0.75% on 8 occurrences,
• pre-opening upside potential on GLOBEX was regularly limited (statistically significant under-performing), while the ES E-MINI S&P 500 posted a pre-opening low on GLOBEX at least -0.50% below the previous session’s close on 15 out of the last 16 occurrences.

And with respect to setup S2 (9 occurrences since 2001), the ES E-MINI S&P 500 was never up more than +0.03% at the end of the first hour of the then following session on all 9 occurrences.

The ES E-MINI S&P 500′ statistically significant (the respective t-score exceeds the -1.645 mark on the downside) under-performance at least until the end of the first hour of the session provided a favorable opportunity for going short on Friday’s close.

________________________________

Bottom line:

At least based on historical probabilities and odds and the market’s regular recent performance on the session after those setups listed above had been triggered on close of the previous trading day, the outlook concerning the ES E-MINI S&P 500′ performance at least until the end of the first hour of Monday’s session is negative.

A favorable short-term opportunity on the short side would be provided in the event of any pre-opening strength targeting a lower open or weakness during the first hour of Monday’s session.

And assumed everything (almost) unchanged, a higher close on Monday’s session and/or any (significant) intraday strength during the Monday/Tuesday time frame will probably provide a selling opportunity targeting a close below Fridays’s close on Wednesday at the latest.

Successful trading,
Frank

________________________________

Summary of potentially tradable edges for Monday – November 9, 2009

DATE	TIME	WHAT	ACTION	WHY	ENTRY	STOP 1)	Pos. Size 2) 3)
11/06/2009	04:00 PM	E-MINI S&P 500	SHORT	see setup S2/S3 above	1067.00	1075.00	(-18) $5,625

1)	the STOP may represent a buy or a sell stop ; on a long position a STOP above the ENTRY will represent a limit order (profit target achieved), a STOP below the ENTRY a stop loss order ; the inverse applies to a short position respectively xx
2)	For position sizing, optimal f (by Ralph Vince) is utilized; optimal f = ([( win/loss ratio + 1 ) * probability of a winning trade ] – 1 ) / ( win/loss ratio ) ; win/loss ratio = avg. gain on a winning trade / avg. loss on a losing trade ; /% simplified version ; Pos. Size (in $) = MAX [Intraday / Overnight Initial Margin ; Maximum Losing Trade (in $) / optimal f ] ; Margin requirements: ES E-MINI S&P 500 (ES): Intraday Initial Margin = $2,250 ; Overnight Initial Margin = $5,625 ; ES E-MINI Nasdaq 100 (NQ): Intraday Initial Margin = $1,750 ; Overnight Initial Margin = $3,500 ; Russel 2000 Mini Futures (TF): Intraday Initial Margin = $2,500 ; Overnight Initial Margin = $5,000) xx
3)	Position size in units per $xxx of marginable equity; if the E-MINI S&P 500, the E-MINI NASDAQ 100 or Russel 2000 Mini Futures are utilized, the number in brackets equates to the number of contracts, otherwise to the number of leveraged Exchange-Traded Funds (ETFs) of 300% of the (inverse) performance of the underlying index, assumed a fixed marginable equity of $100,000

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Disclaimer: Short ES E-MINI S&P 500 and long volatility at time of writing.

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