Daily Commentary - Posted on Sunday, July 19, 2009, 3:17 PM GMT +1

4 Comments


Jul Sunday 19

Trading the Odds on Monday – July 20, 2009

On Friday’s session the market (at least the S&P 500) -for the most part- complied to the slightly negative outlook based on those setups which were triggered on Thursday’s close calling for an at least limitied upside potential during Friday’s session and on the close as well (see my posting Trading the Odds on Friday – July 17, 2009).

The ES (E-MINI S&P 500) opened unchanged, posted an intraday low of -0.51% below and an intraday high of +0.32% above Thursday’s close, and finally closed higher +0.13% on the day, while the Nasdaq 100 (significantly out-performing) ended the session with a gain of +0.55% (S&P 500 -0.04%, DJ Ind. +0.37%, Russel 2000 -0.54%, SOX +1.22%, BKX -2.16%).

Market breadth on the NYSE was relatively week, with NYSE Advancing Issues/Declining Issues at 1.00 and Advancing Volume/Declining Volume at 0.74 (NYSE TRIN / Arms Index at 1.34, well above 1 and in regularly negative territory again), and NASDAQ Advancing Issues/Declining Issues at 0.74 and NASDAQ Advancing Volume/Declining Volume at 1.22 (NASDAQ TRIN at 0.61). NYSE Advancing Volume accounted for only 42.16% of NYSE volume.

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Notably on Friday’s session were the facts that

  • the ES (E-MINI S&P 500) posted a higher close on the fivth consecutive session ,
  • the ES (E-MINI S&P 500) posted a higher low (than the previous session’s low) on the fivth consecutive session (but not a higher high on the fivth consecutive session),
  • the ES (E-MINI S&P 500) posted a close above the open on the sixth consecutive session,
  • the ES (E-MINI S&P 500) posted a higher close despite a NYSE TRIN well above 1 (on a second consecutive session),
  • the ES (E-MINI S&P 500) posted a session with an intraday range of less than 1.0% (high – low),
  • the Nasdaq 100 posted a higher close on the eigth consecutive session,
  • the SOX Semiconductor Index out-performed the Nasdaq 100 on the seventh consecutive session, and
  • it was option expiration Friday.

xx

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 below had been triggered in the past:

  • Setup S1: the ES (E-MINI S&P 500) posted a higher close on five consecutive sessions,
  • Setup S2: the ES (E-MINI S&P 500) posted a higher low (than the previous session’s low) on five consecutive sessions, but a lower higher on the recent session,
  • Setup S3: the ES (E-MINI S&P 500) posted a close above the open on six consecutive sessions,
  • Setup S4: the ES (E-MINI S&P 500) posted a higher close despite a NYSE TRIN above 1.30 on two consecutive sessions,
  • Setup S5: NYSE Volume in Advancing Issues contracted, and NYSE Volume in Declining Issues expanded on two consecutive sessions while the ES (E-MINI S&P 500) closed up on both sessions,
  • Setup S6: the Nasdaq 100 posted a higher close on eigth consecutive sessions,
  • Setup S7: the SOX Semiconductor Index out-performed the Nasdaq 100 on seven consecutive sessions,
  • Setup S8: the ES (E-MINI S&P 500) posted it’s narrowest range of the last 10 sessions, and it closed up either on the fourth consecutive session or posted a gain of at least +5.0% over the course of the last 5 sessions,
  • Setup S9: the session before Monday (means the next session will be on a Monday),
  • Setup S10: the session after option expiration Friday, and
  • Setup S11: any of Setups S1 to S10 had been triggered (S1 OR S2 OR … OR S10).

Table I (click on the link below, the stats table doesn’t fit into the blog’s body) shows the ES (E-MINI S&P 500) performance (since 01/02/1990) on the next session (in this event Monday, July 20) immediately following those sessions where setups S1 to S11 listed above had been triggered in the past.

http://www.tradingtheodds.com/stats/2009-07-17-ES-S1-S11.png

Almost all setups are agreeing concerning their slightly negative outlook on the then following session, with regularly above-average chances for a lower close on the then following session and a below-average profit factor (sum of all profits divided by the sum of all losses) which regularly (partly significantly) undercuts the respective at-any-time profit factor. Therefore it seems likely again that even in the event the ES (E-MINI S&P 500) would close up again, upside potential during the session and on the close will probably be limited.

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 those sessions (in this event Monday, July 20) immediately following those 1,244 sessions where setup S11 had been triggered (‘any of Setups S1 to S10 had been triggered (S1 OR S2 OR … OR S10)‘), representing the ‘overall‘ ( including best case / worst case) bullish or bearish tendency on the then following session after any of those setups listed above had been triggered on close of the previous trading day.

2009-07-17-ES-S11i

With respect to setup S11 (‘any of Setups S1 to S10 had been triggered (S1 OR S2 OR … OR S10)‘) and the ES’ (E-MINI S&P 500) intraday performance on the then following session (in this event Monday, July 20) in the past, it is especially notable that

  • since 01/02/2009 the ES (E-MINI S&P 500) showed a significantly above-average tendency for a lower open (on 23 out of 37 occurrences) the next day, and the ES (E-MINI S&P 500) opened lower at least -1.0% on 14 out of those 36 occurrences while it opened up +1.0% or more on only 4 occurrences,
  • since 03/02/2009 the ES (E-MINI S&P 500) opened lower at least -1.0% on 11 out of 26 occurrences while it opened up +1.0% or more on only 2 occurrences despite the current run-up in US equity markets, and
  • likewise the ES (E-MINI S&P 500) showed an above-average tendency for a lower close as well (although to a lesser extent than chances for a lower open), closing lower on 21 out of 36 occurrences.

________________________________

Bottom line:

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 concerning the ES’ (E-MINI S&P 500) performance is slightly negative (especially with respect to the open), and upside potential on the close will probably be limited again.

From a historical, statistical and risk/reward perspective any significant (!) strength in ES (E-MINI S&P 500) futures in GLOBEX Sunday’s evening / Monday’s pre-opening session might provide a favorable opportunity on the short side targeting a lower (or at least a modestly higher) open on Monday’s session.

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: Short ES (E-MINI S&P 500) at time of writing.

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Comments (4)

 

  1. CarlosR says:

    Hi Frank,

    Great analyis, as usual.

    I might have spotted a few minor errors, or maybe I just didn’t understand something:

    1) When you said “Almost all setups are agreeing concerning their slightly negative outlook on the then following session, with regularly below-average chances for a lower close on the then following session”, don’t you mean above-average chances (for a lower close) instead? (or below-average chances for a higher close, either way)

    2) When you said “immediately following those 68 sessions where setup S11 had been triggered”, I got lost. Shouldn’t that number be 1,245? Or maybe I missed something.

    3) Finally, when you wrote “since 02/01/2009 the ES (E-MINI S&P 500) showed a significantly above-average tendency for a lower open (on 23 out of 37 occurrences)”, I think that should be “since 01/02/09” instead, shouldn’t it?

    None of this detracts from you good work. And it’s a real treat to have this available before the market opens this evening. I know that is difficult to do during the week, because of time differences, but it’s very nice when it does happen. Thanks again for all your hard work!

  2. train2k says:

    Thanks for great work! Just want to report that the link in this post is broken? I got 404 page error when click http://www.tradingtheodds.com/stats/2009-07-17-ES-S1-S11.png .

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