Daily Commentary - Posted on Tuesday, June 23, 2009, 9:14 AM GMT +1

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Jun Tuesday 23

Trading the Odds on Tuesday – June 23, 2009


Although Asian markets on Monday’s morning (which all closed modestly higher, and selected four of them managed a gain which surpassed the S&P 500′ gain on Friday’s close) provided an indication that any weakness before, on or shortly after the open (concerning the regular session in the US) could’ve provided an edge on the long side of the market (concerning a potentially intraday high significantly higher than the pre-opening low of -0.9% in E-mini futures, see my posting Trading the Odds on Monday – June 22, 2009 -Asian Markets-), the market went almost straight down and never looked back.

US markets and setups triggered on Friday’s close gave a better indication concerning the poor performance on Monday’s session (cit. ‘the path of least resistance short-term seems to be down, not up‘, see my posting Trading the Odds on Monday – June 22).

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On Monday the SPY (S&P 500 ETF) opened lower -0.98% (which virtually marked the intraday high), posted an intraday low of -3.03% below Friday’s close and finally closed lower -3.00% on the day (virtually on the low).

Market breadth on the NYSE and the NASDAQ was heavily lopsided on the downside with NYSE Advancing Issues/Declining Issues at 0.13, and NYSE Advancing Volume/Declining Volume at 0.07 (NYSE TRIN at 1.77), and NASDAQ Advancing Issues/Declining Issues at 0.20 and NASDAQ Advancing Volume/Declining Volume at 0.11 (NASDAQ TRIN at 1.74). This was the second 90% down day (volume in declining stocks accounted for at least 90% of NYSE Total Volume) and third 80% dwon day during the last 6 trading days.

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

  • 90% Down Day (volume in declining stocks accounted for at least 90% of NYSE Total Volume) (Setup S1),
  • the S&P 500 closed lower at least -3.0% on the day (Setup S2),
  • 90% Down Day AND the S&P 500 closed lower at least -3.0% on the day, setup S1 AND setup S2 combined (Setup S3),
  • the second (or more) 90% Down Day during the last 6 sessions (Setup S4), and
  • the third (or more) 80% Down Day during the last 6 sessions (Setup S5).

Table I shows the ES (E-MINI S&P 500) performance (since 01/03/2000) on the next session (in this event Tuesday, June 23) immediately following those sessions where setups S1 to S5 listed above had been triggered.

2009-06-23-ES-S1-S5

Except setup S5 all setups are agreeing concerning their (slightly) positive indication with respect to the then following session due to the above-average probability for a higher close and an above-average profit factor 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 Tuesday, June 23) immediately following those 31 sessions where setup S3 had been triggered (90% Down Day AND the S&P 500 closed lower at least -3.0% on the day‘).

2009-06-23-ES-S3i

Concerning setup’s S3 (90% Down Day AND the S&P 500 closed lower at least -3.0% on the day) intraday stats on the then following session it is especially remarkable that

  • chances that the ES (S&P 500 E-MINI) will open higher significantly exceed the at-any-time probabilities for a higher open (on 22 out of 31 occurrences),
  • the profit factor on the high (means the potential magnitude of change on the intraday high compared to the previous session’s close) significantly exceeds the respective at-any-time profit factor (101.69 versus 13.96), and on only 1 out of 31 occurrences did the ES (S&P 500 E-MINI) leave an unfilled gap on the downside (not a single quote during regular trading ours above the previous session’s close),
  • the profit factor on the low (means the potential magnitude of change on the intraday low compared to the previous session’s close) significantly undercuts the respective at-any-time profit factor on the low, means the previous session’s weakness regularly sees some follow-through on the then following session at least during regular trading hours, and finally
  • the ES (S&P 500 E-MINI) shows a tendency for a higher close (chances are approximately 2:1, applies to the close versus open as well) with a significantly above-average profit factor of 1.75 in comparison to an at-any-time profit factor of 0.98 on the close.

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Bottom line:

With respect to Tuesday’s session and based on the respective probabilities and odds concerning those setups which were triggered on Monday’s close, the outlook concerning the ES’ (E-MINI S&P 500) performance is slightly positive, but more due to the above-average profit factor (expectancy / pay-off) than with respect to chances that the ES (S&P 500 E-MINI) will probably close high which are more ore less average only (and take into account that the market regularly sees some -partly significantly- follow-through of the previous session’s weakness during the then following session).

But a real tradable edge (intraday only) would be provided on the long side of the market in the event of any significant (important !) weakness before, on or shortly after the open with respect to a potential intraday high significantly above Monday’s close and a potential higher close 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: Long DAX (German Aktien Index) at time of writing.

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Comments (1)

 

  1. aidyn says:

    Frank,
    You run a great blog – thanks.
    Have you looked at SP500 performance in the 5 through to 10 days following 2 or more 90% down days that occur close together (say within 10 trading days)?
    Thanks,
    Aidyn.

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