Daily Commentary - Posted on Thursday, June 18, 2009, 11:56 PM GMT +1

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Jun Thursday 18

Trading the Odds on Friday – June 19, 2009


Despite the fact that weak Asian market’s indicated a probable lower close on Thursday’s session (see my posting Trading the Odds on Thursday – June 18, 2009 -Asian Markets-), the market (SPY) managed a modest gain of +0.58% on the close, but -expectedly- could not hold onto its intraday high of +1.22%, and sellers emerged serveral times during the session and took the market down a few points again and again which provided several favorable opportunities on the short side before and during the session (see my respective Twitter updates).

But concerning the respective probabilties and odds for today’s session based on those setups which were triggered on Wednesday’s close (‘NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume both closed below 1 on four consecutive sessions AND the S&P 500 closed lower three days in a row -the most recent ones-‘) and Thursday’s morning (Japan’s Nikkei 225 , Hong Kong’s Hang Seng Index , Sydney’s ASX All Ordinaries Index and Korea’s KOSPI Index closed below the respective bar‘): The market fully complied to the positive outlook indicated by those setups which was triggered on Wednesday’s close (forecasting an intraday high significant above Wednesday’s close with weakness during the second part of the session), and concerning the setup triggered on Thursday’s morning chances for a higher close were 6 out of 17 sessions (11 lower closes) with an average winning trade (of those 6 higher closes) of 0.67%. So although the S&P 500/SPY posted a 7th higher close out of 18 occurrences now, it undercuts the average winning trade of +0.67% (just as a reminder that we’re trading probabilities, not certainties, and that is nevertheless possibe to capitalize on a positive/negative tendency/bias only -like shorting intraday strength on Thursday’s session- although the market finally did not close lower as it was supposed to do).

Market breadth on the NYSE was relatively strong with NYSE Advancing Issues/Declining Issues at 1.38, and NYSE Advancing Volume/Declining Volume at 1.74 (NYSE TRIN at 0.80), but the Nasdaq 100 showed some less impressive figures with NASDAQ Advancing Issues/Declining Issues at 1.13 and NASDAQ Advancing Volume/Declining Volume at 0.67 (NASDAQ TRIN at 1.69 in regularly significant bearish territory)

Remarkable on Thursday’s session were also the facts that

  • the S&P 500 out-performed the S&P 500 Equal Weighted Index ($SPXEW) the 6th day in a row,
  • the Nasdaq 100 closed lower (-0.14%) although the S&P 500 closed up more than +0.5%.

I therefore checked for the following setups which were triggered on Thursday’s close:

  • NASDAQ Advancing Issues/Declining Issues < 1.10 and NASDAQ Advancing Volume/Declining Volume < 0.7 on a day where the Nasdaq 100 did NOT close lower than -0.25% (Setup S1),
  • the Nasdaq 100 closed lower although the S&P 500 closed up more than +0.5% (Setup S2),
  • the S&P 500 out-performed the S&P 500 Equal Weighted Index ($SPXEW) on six consecutive sessions (Setup S3),
  • the session preceding option expiration Friday (Setup S4), and
  • Setups S2 and S4 combinded (Setup S5).

Table I shows the NDX (Nasdaq 100) performance (since 01/02/1990) on the next session (in this event Friday, June 19) immediately following those sessions where setups S1 to S5 listed above had been triggered.

200906187-NDX-S1-5Setups S2 and S3 do not show any significant edge on either side of the market, but concerning setup S1 (modest loss on weak breadth) and setup S4 (the session preceding option expiration Friday) the NDX shows an above-average tendency for a lower close the then following session (in this event Friday June 19, 2009), and the profit factor significantly undercuts the respective at-any-time profit factor.

Table II now shows the NDX (Nasdaq 100) intraday performance (since 01/02/1990) concerning the open, high, low, close (compared to the previous’s session close) and close versus open on the next session (in this event Friday, June 19) immediately following those 77 sessions where setup S1 had been triggered (‘NASDAQ Advancing Issues/Declining Issues < 1.10 and NASDAQ Advancing Volume/Declining Volume < 0.7 on a day where the Nasdaq 100 did NOT close lower than -0.25%‘):

20090618-NDX-S1i

Concerning setup’s S1 (‘NASDAQ Advancing Issues/Declining Issues < 1.10 and NASDAQ Advancing Volume/Declining Volume < 0.7 on a day where the Nasdaq 100 did NOT close lower than -0.25%‘) intraday stats on the then following session it is especially remarkable that the Nasdaq 100 regularly shows a significant tendency for a limited upside potential on the high (means the potential magnitude of change on the intraday high compared to the previous session’s close) due to the fact that the respective profit factor significantly undercuts the respective at-any-time profit factor, and a remarkable tendency for a (significantly) lower close as well. With respecto to setup S1, out of the last 35 occurrences the NDX managed a gain on the close of +1% or more only once, while it closed lower -1.0% or more on 13 occurrences.

I purposeful did not metion the fact that the Nasdaq 100 closed lower on all 5 occurrences where setups S2 (‘the Nasdaq 100 closed lower although the S&P 500 closed up more than +0.5%‘) and S4 (‘the session preceding option expiration Friday‘) had been triggered on the same day due to the fact that the sample size with 5 occurrences only is way too small to read anythin statistically relevant into it (but nevertheless something to kee in mind).

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Bottom line:

With respect to Friday’s session and based on the respective probabilities and odds concerning those setups which were triggered on Thurday’s close, the outlook concerning the Nasdaq 100 is short-term (next session only) negative, and any significant strength before, on or shortly after the open will probably provide a short-term selling opportunity .

Successful trading,

Frank

P.s.: I’ll regularly make some intraday updates as well using Twitter. If you’re interested in, please have a look at the blog during the trading session as well or subscribe directly to Twitter (recommended).

Disclaimer: Long BGZ (Daily Large Cap Bear 3x Shares) at time of writing.

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