Daily Commentary - Posted on Tuesday, June 30, 2009, 11:46 PM GMT +1

3 Comments


Jun Tuesday 30

Trading the Odds on Wednesday – July 1, 2009

ES (E-MINI S&P 500) showed a remarkable strength during the last couple of sessions. Although several negative setups had been triggered -especially the negative setup during Monday’s sessions (opening up gap fill) which supposed a close below the open-, the market almost always refused to go down when it was supposed to do, and posted higher high (then the previous session’s high) on the fifth consecutive session today.

The ES (E-MINI S&P 500) opened higher +0.14% , subsequently posted an intraday high of +0.52% above Tuesday’s close, but reversed course shortly after the open and posted an intraday low of -1.38% below Tuesday’s close, and finally closed lower -0.62% on the day , while the Nasdaq 100 closed lower -0.44% on the day.

Market breadth on the NYSE and the NASDAQ was weak with NYSE Advancing Issues/Declining Issues at 0.77, and NYSE Advancing Volume/Declining Volume at 0.45 (NYSE TRIN at 1.72), and NASDAQ Advancing Issues/Declining Issues at 0.74 and NASDAQ Advancing Volume/Declining Volume at 0.52 (NASDAQ TRIN at 1.42).

On Tuesday’s session is was especially notable that:

  • the ES (E-MINI S&P 500) posted a higher high on five consecutive sessions (then the previous session’s high),
  • the ES (E-MINI S&P 500) closed below the open after 4 consecutive sessions with a close above the open, and
  • the ES (E-MINI S&P 500) posted an outside bar with a lower close, means today’s range completely covered the previous session’s range (today’s high > the previous session’S high, and today’s low < the previous session’s low) with a lower close, and
  • the ES (E-MINI S&P 500)’ intraday high (of 926) marked the high for the last 10 sessions.

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 (which were all triggered on Tuesday’s close) had been triggered in the past:

  • the ES (E-MINI S&P 500) posted a higher high on five consecutive sessions (Setup S1),
  • the ES (E-MINI S&P 500) closed below the open after 4 consecutive sessions with a close above the open (Setup S2),
  • the ES (E-MINI S&P 500) posted an outside bar with a lower close (Setup S3) ,
  • the ES (E-MINI S&P 500) posted an outside bar on a session where the ES (E-MINI S&P 500) had posted an 10-day intraday high as well (Setup S4), and
  • the ES (E-MINI S&P 500) posted an outside bar on a session where the ES (E-MINI S&P 500) posted a higher high on a fifth consecutive sessions  -Setups S1 and S3 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 Wednesday, July 1) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past:

2009-06-30-ES-S1-S5

Although none of those setups listed above (except setup S5 with the smallest sample size) shows a significantly above or below-average probability for a higher/lower close on the then following session, all setups are agreeing concerning their -partly significantly- below-average profit factor (sum of all profits divided by the sum of all losses) for a negative expectancy on the next session.

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 Wednesday, July 1) immediately following those 36 sessions where setup S4 had been triggered (the ES (E-MINI S&P 500) posted an outside bar on a session where the ES (E-MINI S&P 500) had posted an 10-day intraday high as well‘), but additionally taking into account that the ES (E-MINI S&P 500) closed lower more than -0.50% on yesterday’s session (36 out of those 90 sessions which fulfilled setup S4 mentioned above met this additional requirement).

2009-06-30-ES-S4i


Concerning setup’s S4 (the ES (E-MINI S&P 500) posted an outside bar on a session where the ES (E-MINI S&P 500) had posted an 10-day intraday high as well ) intraday stats on the then following session it is especially remarkable that

  • although the ES (S&P 500 E-MINI) showed a tendency fow a higher close and a close above the open on the last occurrences, since 02/01/1990 it managed a higher close of +1.0% or more only twice, while it lost -1.0% or more on 8 occurrences for an overall significantly below-average profit factor (0.46 compared to an at-any-time profit factor on the close of 1.07),
  • the ES (S&P 500 E-MINI) never managed a gain of +1.0% or more on the close above the open, while it closed at least -1.0% or more below the open on 9 out of 36 occurrences on the then following session,
  • the average high is 0.44% above the previous session’s close only (compared to an at-any-time high of +0.67% above the previous session’s close), while the average low is -0.97% below the previous session’s close (compared to an at-any-time intraday low of -0.71% below the previous session’s close).

________________________________

Bottom line:

With respect to Wednesday’s session and based on the respective probabilities and odds concerning those setups which were triggered on Tuesday’s close, the outlook concerning the ES’ (E-MINI S&P 500) performance is negative.

Although the ES (S&P 500 E-MINI) already closed lower on Tuesday’ session and a follow-up on Tuesday’s late strength should be expected early on Wednesday’s session, a tradable and favorable 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 with respect to a potential lower low, a close below Tuesday’s close and/or at least limited upside potential on the close (a close on a weak note).

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. Brian says:

    Hi Frank, I trade the ES and really enjoy your nightly comments, Thanks! Brian

  2. Douglas says:

    Frank. Thanks also.

    Is your S4 basically a statistical analysis of a Japanese Candlesticks Bearish Engulfing Pattern?

    • Douglas,

      it is close, but doesn’t meet all requirements.

      A Bearish Engulfing Pattern has a black body (a close below the open) that completely covers or engulfs the body of the previous day, that means Tuesday’s open would’ve been above Monday’s close (white body with a close above the open), and Tuesday’s close below Monday’s open (Tuesday’s black body would then completely engulf Monday’s white body).

      With respect to setup S4 only a lower close than the previous session’s close was requested (and a completey coverage of the entire range, not the body alone), and even if we would’ve had another white candle on Tuesday’s session (a close above the open) setup S4 would have been fulfilled due to the fact that it relates to the entire range (high and low), not to the open and close (body).

      The SPX didn’t post a Bearish Engulfing Pattern on Tuesday’s session (due to an open below Monday’s close), but the SPY and the ES E-mini in fact did.

      If I’ve the time I’ll check for that setup as well. Thanks for the suggestion.

      Best,
      Frank

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