Daily Commentary - Posted on Tuesday, June 16, 2009, 11:25 PM GMT +1

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Jun Tuesday 16

Trading the Odds on Wednesday – June 17, 2009


Tuesday’s session was one of those days when the market (S&P 500) reminded us that we’re always talking about (and trading) probabilities and odds, not certainties.

The SPY (S&P 500 ETF) opened higher +0.36% (which almosted marked the high for the day), posted an intraday high +0.42% above Monday’s close (which significantly undercuts the supposed intraday strength which was otherwise a regular pattern during those sessions in the past which fulfilled the respective setups triggered on Monday’s close), posted an intraday low -1.42% below Monday’s close and finally closed lower -1.36% on the day (near the low), at least concerning Tuesday’s close contrary to what probabilties and odds concerning those setups which were triggered on Monday’s close suggested (NYSE Advancing Issues/Declining Issues < 0.20, NYSE Advancing Volume/Declining Volume < 0.10 and S&P 500 down more than -2.0%‘), see my posting Trading the Odds on Tuesday – June 16, 2009.

Market breadth was lopsided on the downside again with NYSE Advancing Issues/Declining Issues at 0.39, and NYSE Advancing Volume/Declining Volume at 0.23 (NYSE TRIN at 1.69).

Additionally the S&P 500 out-performed the S&P 500 Equal Weighted Index ($SPXEW) the fourth day in a row, the third day by a relatively wide margin of at least +0.3%. The S&P Equal Weight Index is the equal-weighted version of the S&P 500. The index has the same constituents as the capitalization weighted S&P 500, but each company in the SPXEW is allocated a fixed weight 0f 0.20%, rebalanced quarterly. The S&P Equal Weight Index measures the performance of the same 500 companies, in equal weights. See AMEX. In other words: The heavy capitalized stocks in the S&P 500 -usually over-weighted in institutional portfolios- out-performed the less capitalized stocks in the index by a more than usual wide margin.

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

  • NYSE Advancing Issues/Declining Issues < 0.40 and NYSE Advancing Issues/Declining Issues < 0.15 the day before (Setup S1),
  • NYSE Advancing Volume/Declining Volume < 0.25 and NYSE Advancing Volume/Declining Volume < 0.1 the day before (Setup S2),
  • S&P 500 down more than -1.0% and S&P 500 down more than -2.5% the day before, and the S&P 500 posted an intraday high less than +0.5% above the previous session’s close on the most recent session (Setup S3),
  • Setups S1 and S2 combinded (Setup S4), and
  • the S&P 500 out-performed the S&P 500 Equal Weighted Index ($SPXEW) on 4 consecutive sessions, thereof the most recent 3 sesssions by at least +0.3% (Setup S5).

Table I shows the ES (S&P 500 E-MINI) performance (since 01/02/1990) on the next session (in this event Wednesday, June 17) immediately following those sessions where setups S1 to S5 listed above had been triggered.

20090616-ES-S1-5

Setups S1 to S5 are all agreeing concerning their positive outlook on the then following session. Especially setup S3 (‘S&P 500 down more than -1.0% and S&P 500 down more than -2.5% the day before, and the S&P 500 posted an intraday high less than +0.5% above the previous session’s close on the most recent session‘) shows a significant tendency for a higher close the then following session, and the profit factor (expectancy, pay-off) more than triples the respective at-any-time profit factor.

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 Wednesday, June 17) immediately following those 23 sessions where setup S3 had been triggered (‘S&P 500 down more than -1.0% and S&P 500 down more than -2.5% the day before, and the S&P 500 posted an intraday high less than +0.5% above the previous session’s close on the most recent session‘):

20090616-ES-S3i

Concerning setup’s S3 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 the then following session (65% vs. 51.5%), and in the event the S&P 500 opens higher, is regularly opens higher with a gap up (on average +0.82%),
  • 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 881.30 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 2.32% in the past concerning those 23 sessions which fulfilled the setup mentioned above),
  • the S&P 500 shows a significant tnedency for an unfilled opening gap on the upside the then following sessions (on 7 out of 23 occurrences where the S&P 500 posted an intraday low above the previous session’s close), and finally
  • the ES (S&P 500 E-MINI) shows a significant tendency for a higher close (on 19 out of 23 occurrences) and close versus open as well (on 18 out of 23 occurrences) 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).

But some cautious is warranted due to the fact the almost identical probabilities and odds applied to Tuesday’s session as well, and the market did a poor job (concerning the respective probabilties and odds which suggested a significant intraday strength and a probable higher close as well).

________________________________

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 is (again) 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 Wednesday’s session significantly above Tuesday’s close, but this will apply -although to a lesser extent (profit factor)- to a potential higher close and close versus open as well.

But keep in mind that the outlook for the remainder of the week is NOT positive (option expiration with a down day on Monday, see my posting Option Expiration Weeks and (Big Down Days on) Mondays).

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).

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Comments (1)

 

  1. CarlosR says:

    Frank,

    Just wanted to say thanks for your 11:18am twitter message this morning. I exited my long position right away, and even made a small profit, thanks to you.

    You are doing great stuff here!

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