Daily Commentary - Posted on Sunday, June 28, 2009, 10:47 AM GMT +1

3 Comments


Jun Sunday 28

Trading the Odds on Monday – June 29, 2009

On Friday, and with an intraday range of 0.97%, the S&P 500 posted its least volatile day (means narrowest range between intraday high and intraday low) not only of the past ten sessions, but almost of the past two month as well (since 05/08/2009).

The SPY (S&P 500 ETF) opened lower -0.34% , subsequently posted an intraday low of -0.88% below Thursday’s close, but reversed course again during the second part of the session and finally closed modestly lower -0.26% on the day , while the Nasdaq 100 closed higher (the third day in a row) +0.30% on the day.

Market breadth on the NYSE and the NASDAQ was mixed with NYSE Advancing Issues/Declining Issues at 1.56 (positive despite a lower close for the S&P 500), and NYSE Advancing Volume/Declining Volume at 1.08 (NYSE TRIN at 1.44), and NASDAQ Advancing Issues/Declining Issues at 1.82 and NASDAQ Advancing Volume/Declining Volume at 1.13 (NASDAQ TRIN at 1.62 significantly above 1 in regularly negative territory despite a higher close for the NDX).

On Friday’s session is was especially notable that:

  • the Nasdaq 100 closed higher the third day in a row,
  • the ES (E-MINI S&P 500) posted a higher open, a higher high and a higher low (than the previous session’s open/high/low) the third day in a row (but closed lower on the most recent session), and
  • the S&P 500 posted its least volatile day (means narrowest range between intraday high and intraday low) of the past ten sessions after it closed higher on three consecutive sessions before.

I therefore checked -as always from a historical and statistical perspective- for the market’s performance on the then following session(s) after those setups listed above had been triggered in the past:

  • the ES (E-MINI S&P 500) posted a higher open, a higher high and a higher low (than the previous session’s open/high/low) three days in a row (Setup S1),
  • the ES (E-MINI S&P 500) posted its least volatile day of the past ten sessions (Setup S2),
  • the ES (E-MINI S&P 500) posted its least volatile day of the past ten sessions (Setup S2) after it closed higher on three consecutive sessions before (Setup S3) ,
  • the ES (E-MINI S&P 500) closer lower despite NYSE Advancing Issues outnumbered Declining Issues by a ratio of gt. 1.50 (NYSE Advancing Issues/Declining Issues > 1.50 (Setup S4),
  • the ES (E-MINI S&P 500) posted a higher open, a higher high and a higher low three days in a row , and the ES (E-MINI S&P 500) posted its least volatile day of the past ten sessions on the most recent session -Setups S1 and S2 combined- (Setup S5).

Table I shows the ES (E-MINI S&P 500) performance (since 01/02/1990) on the next session (in this event Monday, June 29) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past:

2009-06-26-ES-S1-S5

Although setups S1 and S2 do not show any (significantly) above or below-average probability and profit factor (pay-off as the sum of all profits divided by the sum of all losses) for a higher/lower close on the then following session, concerning setups S3 and S5 it is a short-term negative sign when market strength on the previous sessions (3 consecutive higher closes or 3 consecutive sessions with a higher open/higher high/higher low) had been subsequently followed by a ‘quite‘ session (narrowest intraday range of the past ten sessions). Setups S3 and S5 show an above-average probability for a lower close on the then following session, and the profit factor as the sum of all historical profits divided by the sum of all historical losses undercuts the respective at-any-time profit factor.

Table II now shows the ES (E-MINI S&P 500) 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 Monday, June 29) immediately following those 105 sessions where setup S3 had been triggered (the ES (E-MINI S&P 500) posted its least volatile day of the past ten sessions after it closed higher on three consecutive sessions before‘).

2009-06-26-ES-S3i

Concerning setup’s S3 (the ES (E-MINI S&P 500) posted its least volatile day of the past ten sessions after it closed higher on three consecutive sessions before ) intraday stats on the then following session it is especially remarkable that

  • chances that the ES (S&P 500 E-MINI) will open higher or lower are comparable to the at-any-time probability for a higher/lower open, but the profit factor on the open undercuts the respective at-any-time profit factor (means the magnitude of a positive change on the open is regularly lower than on an average session);
  • the profit factor on the high (means the potential magnitude of change on the intraday high compared to the previous session’s close) and on the low as well undercuts the respective at-any-time profit factor on the intraday high and intraday low, means upside potential is regularly limited on those sessions which fulfill the setup mentioned above while the downside potential exceeds the respective at-any-time downside potential during any session,
  • chances that the ES (S&P 500 E-MINI) will close higher slightly undercuts the respective at-any-time probability for a higher close on any session, but the profit factor on the close undercuts the respective at-any-time profit factor, means potential losses on a lower close exceed the average gain on a higher close which applies to a potential close above or below the open as well (means the index is more likely to close on a weaker note than on a positive note in comparison to the open), but
  • concerning Monday’s session there is no significant edge provided, means although probabilities and odds are (slightly) tilt in favor of some weakness during and on the close as well on Monday’s session, downside potential is regularly limited as well (besides the session on 12/01/2008).

________________________________

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 slightly negative.

Therefore a real tradable and favorable edge (intraday only) would be provided on the short side of the market (concerning the ES) in the event of any significant (!) strength before, on or shortly after the open with respect to a potential intraday low and close below Friday’s close and/or at least limited upside potential on the close (if any).

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

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Comments (3)

 

  1. PTTrader says:

    Hi Frank. Thanks again for great analysis. Did you cover those shorts from Thursday? I did not see any twitter update about it. But I guess you did.

    • PTTrader,

      yes I did before the open on Friday’s session when the ES was trading approximately 4 points below Thursday’s close because I didn’t expect much more downside (it’s always about risk:reward) but not much upside as well, otherwise I would’ve rversed my position.

      Best,
      Frank

  2. be the ball says:

    Frank,

    Quick question if you feel the urge to dig.

    Your setup S1, 3 higher highs etc… The Gap Guy has a stat that a gap up on day 4 after that setup has an 84% win rate with close at EOD or on Gap Fill.

    Would be curious if your data supports that contention.

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