Daily Commentary - Posted on Saturday, June 20, 2009, 10:47 PM GMT +1

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Jun Saturday 20

Trading the Odds on Monday – June 22, 2009


Asian markets on last Friday’s morning (which all closed modestly higher, but none of them managed a gain which surpassed the S&P 500′ gain on Thursday’s close) provided a reliable indication that the relatively strong intraday gains concerning the S&P 500 during Friday’s session wouldn’t be sustainable (see my posting Trading the Odds on Friday – June 19, 2009 -Asian Markets-).

The ES (S&P 500 E-MINI) closed lower -0.22% on the day (SPY: -0.19%, SPX: +0.31%) in compliance with the respective probabilties and odds for a lower close (or at least limited upside potential with a shorting opportunity provided on any significant strength before, on or shortly after the open) based on the setup which was triggered on Friday morning.

Surprinsingly and contrary to what probabilities and odds would’ve suggested (see my posting Trading the Odds on Friday – June 19), the Nasdaq 100 closed relatively strong up +1.20% on the day.

Market breadth on the NYSE and the NASDAQ was relatively strong with NYSE Advancing Issues/Declining Issues at 1.67, and NYSE Advancing Volume/Declining Volume at 1.78 (NYSE TRIN at 0.94), and NASDAQ Advancing Issues/Declining Issues at 1.44 and NASDAQ Advancing Volume/Declining Volume at 1.58 (NASDAQ TRIN at 0.91). Interesting is the fact that although NYSE breadth came in stronger than NASDAQ breadth, the S&P 500 significantly under-performed the Nasdaq 100 on Friday’s session.

But before we stick into probabilities and odds concerning Monday’s session, a short recap. The S&P 500 closed lower -2.64% on the week (and below last Monday’s close -the big down day at the start of option expiration week- as well), fully compliant to the probabilties and odds presented in Tuesday’s posting Option Expiration Weeks and (Big Down Days on) Mondays which indicated a probable lower close on option expiration (with an edge on the short side beyond last Tuesday’s session) based on the setup which was triggered on last Monday’s close (‘ Monday during (at the start of) option expiration week, and the S&P 500 closed lower at least -2.0% ).

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Remarkable on Friday’s session were the facts that

  • the ratios of NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume both expanded the 4th day in a row,
  • although NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining posted a strong reading on the close, the S&P 500 closed only modestly higher +0.31% on the day (ES and SPY closed lower),
  • the S&P 500 significantly under-performed the Nasdaq 100 although NYSE breadth came in (significantly) stronger than NASDAQ breadth

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

  • NYSE Advancing Issues/Declining Issues > 1.60 and NYSE Advancing Volume/Declining Volume > 1.75 (both in significantly bullish territory) on a day where the S&P 500 closed modestly higher (not lower) only less than +0.50% on the day (Setup S1),
  • Setup S1 AND the S&P 500 closed in the lower half of it’s daily trading range (Setup S2),
  • NYSE Advancing Issues/Declining Issues > NASDAQ Advancing Issues/Declining Issues AND NYSE Advancing Volume/Declining Volume > NASDAQ Advancing Volume/Declining Volume AND the S&P 500 under-performed the Nasdaq 100 (significantly) by at least -0.75% (Setup S3),
  • option expiration (Setup S4), and
  • option expiration (Setup S4), AND the S&P 500 closed modestly higher (not lower) less than +0.50% on the day (Setup S5).

Table I shows the ES (E-MINI S&P 500) performance (since 01/03/2000) on the next session (in this event Monday, June 22) immediately following those sessions where setups S1 to S5 listed above had been triggered.

2009-06-22-ES-S1-S5

Setup S3 seems to be the only setup providing a modest edge on the long side (but that will be put into perspective later) due to the above-average probability for a higher close the then following session, and an above-average profit factor of 1.47 compared to an at-any-time profit factor of 0.98 since 01/03/2000.

Table II now shows the ES (E-MINI S&P 500) intraday performance (since 01/03/2000) concerning the open, high, low, close (compared to the previous’s session close) and close versus open on the next session (in this event Monday, June 22) immediately following those 58 sessions where setup S3 had been triggered (NYSE Advancing Issues/Declining Issues > NASDAQ Advancing Issues/Declining Issues AND NYSE Advancing Volume/Declining Volume > NASDAQ Advancing Volume/Declining Volume AND the S&P 500 under-performed the Nasdaq 100 by at least -0.75%‘), which shows the highest profit factor of all 5 setups mentioned above:

2009-06-22-S3i

Concerning setup’s S3 (‘ NYSE Advancing Issues/Declining Issues > NASDAQ Advancing Issues/Declining Issues AND NYSE Advancing Volume/Declining Volume > NASDAQ Advancing Volume/Declining Volume AND the S&P 500 under-performed the Nasdaq 100 by at least -0.75%‘) intraday stats on the then following session it is especially remarkable that although the overall profit factor is positive and above-average, the ES (E-MINI S&P 500) managed a gain above +0.50% on the close only once (10/30/2008) during the last 24 occurrences, and the respective maximum gain on the close versus the open was +0.58% (during the last 24 occurrences).

I checked for the intraday performance of all other setups triggered on Friday’s close as well, and they show almost identical results.

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Bottom line:

With respect to Monday’s session and based on the respective probabilities and odds concerning those setups which were triggered on Friday’s close, the outlook concerning the ES’ (E-MINI S&P 500) performance is mixed, may be slightly negative (the path of least resistance short-term seems to be down, not up), but the S&P 500 shows a reliable tendency for an at least imited upside potential during the then following session and on the close as well.

Therefore a real tradable edge (intraday only) would be provided on the short side of the market in the event of any significant strength before, on or shortly after the open betting on a close not in excess of +0.50%, or in the event of a lower open shorting any significant intraday strength (run-up) betting on a close not in excess of +0.58% above the opening.

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 TYP (Daily Technology Bear 3X Shares) at time of writing.

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Comments (3)

 

  1. train2k says:

    The discrepancy between SPY (-0.19%) with SPX (+0.31%) is caused by the SPY dividend.

  2. CarlosR says:

    Frank,

    You wrote “the ES (E-MINI S&P 500) managed a gain above +0.50% on the close OR on the intraday high only once (10/30/2008) during the last 24 occurrences, and the maximum gain on the close versus the open was +0.58%”.

    Looking at your data, I agree with your observation about the close versus the open, and I also agree that the E-mini only once in the last 24 times had a close-to-close gain over +.5%.

    What I don’t understand is the statement that it managed a gain above +.5% on the intraday high only once. It looks to me like there were 6 such instances, not counting the one where the gain was exactly +.50%.

    Was that part of the post in error, or am I reading your stats wrong?

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