Daily Commentary - Posted on Friday, April 17, 2009, 8:25 AM GMT +1

2 Comments


Apr Friday 17

Follow-up on Trading the Odds on Friday – April 17, 2009

This is a follow-up on my post Trading the Odds on Friday – April 17, 2009.

In my previous post I mentioned that we witnessed a very strong breadth (NYSE Advancing Issues/Declining Issues and the NYSE Advancing Volume/Declining Volume) during the last couple of sessions, but on Thursday  -although a heavily lopsided breadth session with NYSE Advancing Issues/Declining Issues and the NYSE Advancing Volume/Declining Volume both greater than 3.5 the SPX by contrast posted a ‘relatively small end-of-day gain’ of +1.55% (‘only’).

Of course to mark a gain of +1.55% as ‘relatively small’ doesn’t sound overly modest, but you have to take such a gain into context.

Since 10/01/2007 there were 39 occurrences when the ratio of NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume both closed above 3.5. The following table shows the SPX‘ (S&P 500) behavior and the respective performance

  • the day the signal was triggered (close -trigger day-),
  • the session following the session on which the signal was triggered (close -next day-), and
  • the performance (end-of-day change) three days later in comparison to the close on the trigger date.

Especially notable is the last column ‘on average’ due to the fact that

  • on average, on the day the signal was triggered (NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume both closed above 3.5) the SPX gained +3.74% (compared to yesterday’s +1.55% gain ‘only’, which is one of the smallest gains on record concerning this setup since 10/01/2007),
  • on average, the SPX posted an intraday low -1.70% below the trigger day’s close on the next session, while by contrast it posted an intraday high of -on average- +0.92% above the trigger day’s close on the next session.
  • on average, the SPX closed lower -1.07% three days later.

To make a long story short: At least over the course of the next couple of sessions (1-3) upside potential will probably not only be limited, but the odds (potential payout and expectancy, NOT the true chances that the event -in this case the probabilities for a higher or lower close- will occur) are tilt in favor of the short side of the market.

No. Date high low close
(trigger day)
close
(next day)
3 session(s) later
1 04/09/2009 +0,90% -1,31% +3,81% +0,25% -0,53%
2 04/02/2009 +0,97% -0,92% +2,87% +0,97% -2,26%
3 03/23/2009 +0,09% -2,12% +7,08% -2,02% +1,21%
4 03/18/2009 +1,12% -1,58% +2,09% -1,30% +3,60%
5 03/17/2009 +3,20% -1,60% +3,21% +2,09% -1,23%
6 03/12/2009 +1,01% -1,10% +4,07% +0,77% +3,65%
7 03/10/2009 +1,71% -0,80% +6,37% +0,24% +5,13%
8 02/24/2009 +0,90% -2,62% +4,01% -1,07% -4,92%
9 02/06/2009 +0,74% -0,80% +2,69% +0,15% -4,01%
10 01/28/2009 -0,59% -3,43% +3,36% -3,31% -5,57%
11 01/21/2009 -0,06% -3,45% +4,35% -1,52% -0,44%
12 01/02/2009 +0,52% -1,32% +3,16% -0,47% -2,70%
13 12/31/2008 +3,49% -0,43% +1,42% +3,16% +3,48%
14 12/30/2008 +2,21% -0,11% +2,44% +1,42% +4,13%
15 12/16/2008 +0,62% -1,89% +5,14% -0,96% -2,77%
16 12/08/2008 +0,72% -2,67% +3,84% -2,31% -3,97%
17 11/26/2008 +0,97% -0,73% +3,53% +0,96% -4,38%
18 11/24/2008 +2,01% -1,97% +6,47% +0,66% +5,22%
19 11/04/2008 -0,39% -5,56% +4,08% -5,27% -7,43%
20 10/30/2008 +3,17% -1,00% +2,58% +1,54% +5,41%
21 10/28/2008 +3,13% -1,94% +10,79% -1,11% +3,00%
22 10/20/2008 +0,00% -3,34% +4,77% -3,08% -7,84%
23 10/13/2008 +4,08% -3,12% +11,58% -0,53% -5,67%
24 09/30/2008 +0,06% -2,19% +5,42% -0,45% -5,76%
25 09/19/2008 +0,02% -3,94% +4,03% -3,82% -5,51%
26 08/28/2008 -0,24% -1,38% +1,48% -1,37% -1,98%
27 06/05/2008 -0,28% -3,14% +1,95% -3,09% -3,25%
28 04/18/2008 -0,01% -0,80% +1,81% -0,16% -0,75%
29 04/16/2008 +0,29% -0,55% +2,27% +0,06% +1,72%
30 04/01/2008 +0,57% -0,63% +3,59% -0,19% +0,02%
31 03/24/2008 +0,56% -0,64% +1,53% +0,23% -1,79%
32 03/18/2008 +0,81% -2,43% +4,24% -2,43% +1,44%
33 03/11/2008 +0,95% -0,97% +3,71% -0,90% -2,46%
34 02/01/2008 -0,00% -1,13% +1,22% -1,05% -4,94%
35 01/28/2008 +0,81% -0,28% +1,76% +0,62% +1,82%
36 12/06/2007 +0,20% -0,31% +1,50% -0,18% -1,97%
37 11/28/2007 +0,33% -0,73% +2,86% +0,05% +0,23%
38 11/23/2007 +0,37% -2,40% +1,69% -2,32% +1,97%
39 11/13/2007 +0,75% -0,96% +2,91% -0,71% -1,51%
on average: +0,92% -1,70% +3,74% -0,68% -1,07%

Successful trading,

Frank

P.s.: WordPress recently implemented a Twitter widget, so I’ll regularly make some intraday updates as well using Twitter (as I already did during the last couple of session, but unfortunately there seems to be a connectivity issue between WordPress and Twitter; hope that will be solved soon). If you’re interested in, please have a look at the blog during the trading session as well or subscribe directly to Twitter (recommended).

Disclosure: No positions in the securities montioned in this post at time of writing.

Comments (2)

 

  1. hans says:

    Thanks for your great work! Maybe you can tell a little about the tools and data you use?

    hans

  2. Frank says:

    Hans,

    I still use Excel with historical data back to 01/02/1990 for all major US indexes. To setup all the (complex) formulas in order to compute probabilities and odds more or less automatically for my trading purposes and for the daily posts was and still is a time-consuming business (there is always something to improve), but it mainly requires (easier said than done) Excel insights, experience and skills (and a deep addiction to number crunching).

    The real challenge is the ongoing mental effort to uncover those setups and surveys which might provide a favorable and tradable opportunity in the markets. The then following computation is done in a few ticks.

    Best,
    Frank

Leave a Reply

Your email address will not be published. Required fields are marked *