Daily Commentary - Posted on Monday, June 15, 2009, 11:39 PM GMT +1

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Jun Monday 15

Trading the Odds on Tuesday – June 16, 2009


On Monday’s session the market (S&P 500) did exactly what is was supposed to do based on those setups which were trigged on close of Friday’s close, mainly: ‘the S&P 500 closed up while NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume both closed below 0.9‘ (for a significant negative divergence), see my post Trading the Odds on Monday – June 15, 2009.

The SPY (S&P 500 ETF) opened lower -1.18% (like it did on 9 out of the last 10 occurrences where the setup mentioned above had been triggered) which already marked the high for the day, posted an intraday low -2.80% below Friday’s close for the supposed weakness during the session, and finally closed lower -2.29% on the day, in full compliance with Monday’s forecast (cit. ‘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 is negative, and I’d be hesitant concerning any ‘buying the dip’ approach on Monday. Instead it seems that any strength on or shortly after the open might provide a favorable opportunity on the short side of the market due to the fact that any upside potential seems to be limited (at least) and the market shows a significant tendency for some (significant) weakness during the session and on the close.‘).

Market breadth was heavily lopsided on the downside with NYSE Advancing Issues/Declining Issues at 0.18, and NYSE Advancing Volume/Declining Volume at 0.07 (NYSE TRIN at 2.64).

Notably as well was the fact as well that the SPY left an unfilled gap on the open (intraday high lower than the previous session’s close, but intraday high above Friday’s low).

I checked for the following setups which were triggered on Monday’s close (the unfilled opening gap is subject to another study below):

  • NYSE Advancing Issues/Declining Issues < 0.2 (Setup S1),
  • NYSE Advancing Volume/Declining Volume < 0.1 (Setup S2),
  • S&P 500 down more than -2.0% (Setup S3),
  • Setups S1 and S2 combinded (Setup S4), and
  • Setups S1 and S2 and S3 combinded (Setup S5).

Table I shows the ES (S&P 500 E-MINI) performance (since 01/02/1990) on the next session (in this event Tuesday, June 16) immediately following those sessions where setups S1 to S5 listed above had been triggered.

20090615-ES-S1-5

Setups S1 to S5 are all agreeing concerning their positive outlook on the then following session. Although chances for a higher/lower close are only slightly tilt in favor of a higher close, especially with respect to setups S4 and S5 both significantly exceed (double) the respective at-any-time profit factor of 1.07, means the magnitude of change on a potential (probable) higher close regularly significantly exceeds the magnitude of change on a potential lower close.

Table II now shows the ES (S&P 500 E-MINI) 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 Tuesday, June 16) immediately following those 47 sessions where the S&P 500 fulfilled setup S5 mentioned above (‘NYSE Advancing Issues/Declining Issues < 0.20, NYSE Advancing Volume/Declining Volume < 0.10 and S&P 500 down more than -2.0%‘):

20090615-ES-S5i

Concerning setup’s S5 (‘NYSE Advancing Issues/Declining Issues < 0.20, NYSE Advancing Volume/Declining Volume < 0.10 and S&P 500 down more than -2.0%‘) intraday stats 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 the then following session (66% vs. 51.5%),
  • 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, which is with a reading of 372 compared to an at-any-time profit factor 16.50 more than a british understatement (the average -not the maximum- high on the then following session was 2.19% in the past concerning those 47 sessions which fulfilled the setup mentioned above),
  • 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, means downside potential regularly (significantly) exceeds the respective at-any-time magnitude of change on the low the then following session (for a potnetially volatile session with quotes significantly above and below Monday’s close), and finally
  • the ES (S&P 500 E-MINI) shows a significant tendency for a higher close and close versus open as well with both a significant above-average probability of a higher close and  a profit factor (means the potential magnitude of change on the close compared to the previous session’s close) which significantly exceeds the respective at-any-time profit factor (applies to the odds concerning a potential close above/below the open as well).

Additionally I checked for thoses occurrences where the SPY left a downside gap on the open of at least -1.0% (means the SPY posted an intraday high at least -1.0% below the previous session’s close) on the same day where the SPY closed lower at least -2.0%. Table III shows the ES (S&P 500 E-MINI) 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 Tuesday, June 16) immediately following those 18 sessions where the SPY fulfilled the following setup: the SPY posted an intraday high at least -1.0% below the previous session’s close and closed lower at least -2.0% on the day’):

20090615-ES-S6i

Almost the same picture and the same conclusion: Probabilities and odds (profit factor) concerning the high, the close and the close versus open are significantly tilt in favor of the bullish side, especially with respect to the intraday high (on all those 28 occurrences did the ES post an intraday high above the previous session’s close, with an average magnitude of change of +1.69%).

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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 is short-term (next session only) positive, and any weakness on or shortly after the open will probably provide a short-term buying opportunity especially with respect to a potential intraday high on Tuesday’s session significantly above Monday’s close, but this will apply -although to a lesser extent (profit factor)- to a potential higher close and close versus 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: Long DAX (German Stock Index) and short volatility.

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Comments (1)

 

  1. manatrader says:

    Thanks a ton for adding the intraday tweets, it is great to get in on the close to open side of the odds in play :)

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