Daily Commentary - Posted on Tuesday, June 23, 2009, 11:56 PM GMT +1

3 Comments


Jun Tuesday 23

Trading the Odds on Wednesday – June 24, 2009

On Tuesday the market (S&P 500) saw the least volatile session of the last 10 trading days (means with the smallest intraday range between the high and the low of the day), with an intraday range of 1.03% only (SPY).

The SPY (S&P 500 ETF) opened lower -0.20%, posted an intraday low of -0.48% below Monday’s close, an intraday high of +0.55% above Monday’s close, and finally closed almost unchanged +0.08% on the day, while the Nasdaq 100 closed modestly lower -0.15% on the day.

Market breadth on the NYSE and the NASDAQ was relatively positive with NYSE Advancing Issues/Declining Issues at 0.90, and NYSE Advancing Volume/Declining Volume at 1.49 (NYSE TRIN at 0.60 in regularly significant bullish territory), and NASDAQ Advancing Issues/Declining Issues at 0.68 and NASDAQ Advancing Volume/Declining Volume at 1.04 (NASDAQ TRIN at 0.66).

Besides the fact that the SPY saw the least volatile session of the last 10 trading days, there were some other pattern as well which are short-term negative concering the S&P 500 performance on Wednesday’s session:

  • the S&P 500 posted a lower low and lower high than the previous (Monday’s) session’s low and high, but closed higher on the day,
  • NYSE Declining Volume came in significantly lower than it’s average reading during the last 5 sessions, which might give an early indication that downside potential was probably limited on Tuesday’s session mainly due to an absence of sellers, not eager buyers willing to follow a ‘buy the dip’ approach, and
  • NYSE Total Volume contracted in comparison to Monday’s session.

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

  • the S&P 500 closed higher on below-average (5-day) NYSE Declining Volume after a 90% Down Day (Setup S1),
  • the S&P 500 closed modestly higher less than +0.5% on the day, but posted a lower low and lower high than the previous sessions’s low and high (Setup S2),
  • the S&P 500 closed modestly higher less than +0.5% on the day on below-average (5-day) NYSE Declining Volume (Setup S3),
  • the S&P 500 closed higher on a day where NYSE Advancing Issues/Declining Issues < 0.90 and NYSE Advancing Volume/Declining Volume > 1.45 (Setup S4), and
  • the S&P 500 closed higher on a dayw where the S&P 500 saw the least volatile session of the last 10 trading days (Setup S5).

Table I shows the ES (E-MINI S&P 500) performance (since 01/03/2000) on the next session (in this event Wednesday, June 24) immediately following those sessions where setups S1 to S5 listed above had been triggered.

2009-06-23-ES-S1-S5e

Although chances for a higher/lower close the then following session are about even and comparable t the respective at-any-time probability for a higher/lower close on the next session, all setups are agreeing concerning their (slightly) negative indication concerning the then following session due to an below-average profit factor compared to an at-any-time profit factor of 0.98 since 01/03/2000 (especially with respect to the fact that sample sizes concerning setups S3 and S5 are exceptional large).

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 Wednesday, June 24) immediately following those 212 sessions where setup S5 had been triggered (the S&P 500 closed higher on a dayw where the S&P 500 saw the least volatile session of the last 10 trading days’).

2009-06-23-ES-S5i

Concerning setup’s S5 (the S&P 500 closed higher on a dayw where the S&P 500 saw the least volatile session of the last 10 trading days’ ) intraday stats on the then following session it is especially remarkable that

  • the ES (S&P 500 E-MINI) shows a reliable tendency for some weakness on the then following session. The ES (S&P 500 E-MINI) posted an intraday low at least -1.0% below the previous session’s close on 25 out of the last 46 occurrences, while it posted an intraday high +1.0% above the previous session’s close on only 11 out of the last 46 occurrences;
  • the same principle applies to the close and close versus open as well: The ES (S&P 500 E-MINI) managed a gain on the close of +1.0% or more on only 6 out of the last 46 occurrences, while it posted a loss of -1.0% or more on the close on 19 out of the last 46 occurrences. And finally the ES (S&P 500 E-MINI) managed a gain on the close of +1.0% or more above the open on only 2 out of the last 46 occurrences, while it posted a loss of -1.0% or more on the close (in comparison to the open) on 17 out of the last 46 occurrences.

________________________________

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 (slightly) negative, but more due to the below-average profit factor (expectancy / pay-off) than with respect to chances that the ES (S&P 500 E-MINI) will probably close lower which are more ore less average only.

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.

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. Keri says:

    Frank,

    I have been reading your website since last 4 weeks and I am amazed that you have obtained the skills which retail trader can only dream to have.

    Very Lovely website. Without reading your site my day trading day doesnt begin.

    Hey, I had a question reagarding your second performance table (high,low, close..)

    Is there anywhere in yr blog on how to read that table. I am not sure if i amm reading that correctly. Would love to understand that.

    Thanks Frank….

    Neil

  2. Keri says:

    Thanks Frank, Looking forward to your posting. I have been also following you on tweeter for day trading. I was surprised today that despite the strong breadth market sold off after Fed news. I read your stat on tweeter about market closing higher than 1.76% for this kind of breadth.

    Whats your thought? Do you think that any indicator would have “warn” this?

    thanks,
    keri

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