Daily Commentary - Posted on Thursday, June 25, 2009, 7:22 AM GMT +1

6 Comments


Jun Thursday 25

Trading the Odds on Thursday – June 25, 2009

(there will likely be a follow-up of on this post after Asian markets closed, and with respect to those setups triggered on Wednesday’s session which have been left out so far)

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Asian markets on Wednedsday’s morning provided a reliable indication to the potential -if not probable- performance of major market indices before and after the FOMC annuncement after 2:15 PM with respect to the setup(s) triggered.

Cit: ‘Asian market’s positive performance on Wednesday’s morning increases the chances for a higher open and a potential intraday high significantly above Tuesday’s close on Wednesday’s session, but selling into any significant intraday strength during today’s session might provide a favorable short-term/intraday opportunity on the short side with respect to the ES‘ below-average peformance on the close versus open (and additionally taking into account the FOMC announcement at 2:15pm on Wednesday’s session) …‘ (see my posting Trading the Odds on Wednesday – June 24, 2009 -Asian Markets-).

The SPY (S&P 500 ETF) opened higher +0.91% (completey in line with the historical average higher open on those sessions where the respective setup had been triggered before of +1.05%), posted an intraday high of +1.94% above Tuesday’s close, but reversed course always immediately after the FOMC announcement at 2:15pm and finally closed higher +0.86% on the day (but -0.05% below the open), giving back +1.0% from it’s high, while the Nasdaq 100 closed higher +1.59% on the day.

Market breadth on the NYSE and the NASDAQ was quite strong with NYSE Advancing Issues/Declining Issues at 2.60, and NYSE Advancing Volume/Declining Volume at 2.66 (NYSE TRIN at 0.98), and NASDAQ Advancing Issues/Declining Issues at 1.44 and NASDAQ Advancing Volume/Declining Volume at 7.38 (NASDAQ TRIN at 0.20).

Besides the fact that Thursday’s session will be the session immediately following an FOMC announcement day which shows some specific indications, there were some other observations as well:

  • the SPY left an unfilled gap on the open (intraday low +0.28% above Tuesday’s close),
  • NYSE Advancing Volume came in almost unchanged to Tuesday’s session, while NYSE Declining Volume contracted again and came in significantly lower than it’s average reading again during the last 5 sessions, which might give an early indication that downside potential was probably limited on Wedneday’s session mainly due to an absence of sellers,
  • NYSE Total Volume contracted in comparison to Tuesday’s session, the third day in a row (despite 2 consecutive higher closes for the SPX/SPY), and
  • Nasdaq Total Volume more than doubled NYSE Total Volume (speculative interest is running very high again).

But first of all I checked for the ES (E-MINI S&P 500) performance on those sessions immediately following an FOMC announcement day. Table I shows the ES (E-MINI S&P 500) performance (since 01/02/1990) on the next session (in this event Thursday, June 25) immediately following an FOMC announcement day differentiated by setups S1 to S5 (triggered on close of an FOMC announcement day) as listed below.

  • all FOMC announcement days (regular meetings only, no conference calls) (Setup S1)
  • FOMC announcement day (regular meetings only, no conference calls), and the S&P 500 closed higher (Setup S2)
  • FOMC announcement day (regular meetings only, no conference calls), and the S&P 500 closed higher at least +0.50% (Setup S3)
  • FOMC announcement day (regular meetings only, no conference calls), and the S&P 500 closed lower (Setup S4)
  • FOMC announcement day (regular meetings only, no conference calls), and the S&P 500 closed lower at least -0.50% (Setup S5)


2009-06-24-ES-S1-S5

It is especially interesting to note that the ES (E-MINI S&P 500) regularly reverses course (up and down likewise) on the session immediately following an FOMC announcement day, but especially in those events where the S&P 500 has clower lower on an FOMC announcement day (48 higher closes out of 64 occurrences with a profit factor with triples the respective at-any-time profit factor). Concerning setup S3 which has been triggered on Wednesday’s (yesterday’s) chances for a lower close exceed the respective at-any-time probability for a lower close, and the profit factor (magnitude of change on the close) significantly undercuts the respective at-any-time profit factor (means limited upside potential, but above-average downside potential on the close).

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 Thursday, June 24) immediately following those 60 sessions where setup S3 had been triggered (FOMC announcement day (regular meetings only, no conference calls), and the S&P 500 closed higher at least +0.50%‘).

2009-06-24-ES-S3i2009-06-24-ES-S3i2

Concerning setup’s S3 (FOMC announcement day (regular meetings only, no conference calls), and the S&P 500 closed higher at least +0.50% ) intraday stats on the then following session it is especially remarkable that

  • although chances that the ES (S&P 500 E-MINI) will open higher are average only, the profit factor on the open significantl undercuts the respective at-any-time profit factor (means the magnitude of change on the open is regularly -significantly- 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 significantly 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 significantly exceeds the respective at-any-time downside potential during any session,
  • chances that the ES (S&P 500 E-MINI) will close lower exceed the respective at-any-time probability for a lower close on any session (on 35 out of 60 ocurrences), and the profit factor on the close undercuts the respective at-any-time profit factor on the close, means potential losses on a lower close significantly exceed the average loss on a lower close (applies to the close versus open as well).

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Bottom line:

With respect to Thursday’s session and based on the respective probabilities and odds concerning those setups which were triggered on Wednesday’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 again in the event of any strength before, on or shortly after the open with respect to a potential intraday low significantly below Wednesday’s close and a potential lower close/close below the open as well.

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: Short ES (S&P 500 E-MINI) at time of writing (see my Twitter Update).

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Comments (6)

 

  1. JLD says:

    Frank,

    As always, thank-you for your daily analysis. I just wanted to also say thanks for adding the Asian markets to your analysis. I know it probably seems like extra work, but I think it’s worth the effort. I try to watch them myself, because I believe in this current market, they are leading the rally and the declines. It seems that a tradable advantage can be derived there. Keep up the good work!

    • JLD,

      thanks a lot.

      Taking into account Asian markets is an extra work more than worth the time and effort although I’m not sure if they’re really leading or lagging. But from now on they will be a regular part of my daily postings although I probably will not be able to provide 2 postings during the day (after the close of US markets AND after the close of Asian markets). I’ll probably either delay my daily posting until the close of Asian markets (which will be early in the morning in the US) or give an indication via one or more Twitter updates.

      Best,
      Frank

  2. PTTrader says:

    Hey Frank.

    Thank you for an answet in another post. One more thing regarding this. Yes you wrote in bottom line that any streght is a short. Problem is what strenght you find significant :) That is I guess an experience you need to answer that intraday. And if you don’t mind what kind of stop you using ? How many point? OR maybe your stop changes every day depending on your research?

    Thanks in advance and I hope you will keep up with your great work. I have a feeling that some day it will not be free anymore :)

    • PPTrader,

      I agree that something like ‘any strength’ is relative, but entry and exits (stop loss and profit target) solely depend on every trader’s appetite for risk.

      Take Wednesday’s session as an example: The average winning trade on the open (means the average magnitude of change on a higher open) was 1.05%, the average intraday high +1.70% (see the stats). The SPY open higher 0.91% (slightly lower than the average change on a positive open), so from my perspective anything in excess of the average intraday high of 1.70% would be a good entry for a short especially due to the fact that the ES (E-mini S&P 500) posted an intraday high above +2.0% almost always only on those sessions where it had already open up +2.0% or more (and not opened below-average, so the risk seems to be limited). So shorting the ES which was already up +1.70% was a highly favorable trade from a risk:reward perspective, and even more due to the fact that the ES showed a reliable tendency for a close below the open.

      I regularly use a wide stop (at least +/- 0.5%), but this depends if my position in any index future serves as a hedge or is a pure bet on a higher/lower quote.

      Best,
      Frank

  3. PTTrader says:

    Thanks for explaining. ONe more thing :) I know I am pain in the a…
    If you have like on wednesday two different scenarios (one after Asian close and one you made before) why did you go with Asian scenario?

    • PTTrader,

      both scenarios concering Wednesday’s session were more or less in compliance to each other. The bottom line concering those setups which were triggered on Tuesday’s close (US markets) was: Cit. ‘Therefore a real tradable and favorable edge (intraday only) would be provided on the short side of the market in the event of any strength before, on or shortly after the open with respect to a potential intraday low significantly below Tuesday’s close and a potential lower close/close below the open as well.’ Both scenarios went for the short side of the market on any strength before, on or shortly after the open, although those setups which were triggered on Tuesday’s close (US markets) woudn’t have suggested THAT kind of strength which seemed probable after Asian market’s closed the next morning..

      In the event different scenarios would contradict each other, and if I’m in doubt about which one to give more weight (additionally taking into account European market’s performance like the DAX today which is already down -1.5% despite higher Asian closes), I simply stay out and let the market decide until a favorable opportunity is provided.

      I already shorted the ES twice this morning (see my respective Twitter updates) because probabilites and odds concerning those sessions immediately following an FOMC announcement day were significantly tilt in favor of a lower quote before or during the regular session (despite higher Asian markets), so a pre-opening ES’ quote of +1.0% presented -from a risk:reward perspective- a highly favorable shorting opportunity.

      Best,
      Frank

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