Daily Commentary - Posted on Wednesday, July 15, 2009, 11:50 PM GMT +1

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Jul Wednesday 15

Trading the Odds on Thursday – July 16, 2009

With respect to market breadth on the NYSE, US major market indices posted one of their strongest sessions since 02/01/1990. NYSE Advancing Issues/Declining Issues closed at 8.97, NYSE Advancing Volume/Declining Volume at 28.15 (NYSE TRIN at 0.32), and NYSE Advancing Volume accounted for 96.32% of NYSE volume for another 90% up day.

Since 02/01/1990 there were only 6 other occurrences where NYSE Advancing Issues/Declining Issues closed above 8, 2 other occurrences where NYSE Advancing Issues/Declining Issues closed above 28, and 3 other occurrences where NYSE Advancing Volume accounted for more than 96% of NYSE volume.

The ES (E-MINI S&P 500) gapped higher +1.33% on the open (which almost marked the low of the day), posted an intraday high of +3.24% above Tuesday’s close, and finally closed higher +2.86% on the day, while the Nasdaq 100 (slightly out-performing) ended the session with a gain of +3.31% (S&P 500 +2.96%, SPY +2.92%, DJ Ind. +3.07%, Russel 2000 +3.85%, SOX +4.43%, BKX +4.26%).

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Notably on Wednesday’s session were the facts that

  • NYSE Advancing Issues/Declining Issues closed at 8.97,
  • NYSE Advancing Volume/Declining Volume at 28.15,
  • NYSE Advancing Volume accounted for 96.32% of NYSE volume,
  • Wednesday’s session marked the second 90% up day within a 3-day time span,
  • the ES (E-MINI S&P 500) left an unfilled gap on the upside of 1.0% (today’s low > yesterday’s high),
  • the ES (E-MINI S&P 500) posted a higher open (than the open on the previous session), a higher high, a higher low and a higher close all on the third consecutive session,
  • the ES (E-MINI S&P 500) opened above the previous session’s high on a second consecutive session,
  • despite a higher close for the S&P 500, the VIX (CBOE Volatility Index) closed higher as well (although regularly negatively correlated), and
  • the Nasdaq 100 closed higher on the sixth consecutive session.

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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: NYSE Advancing Issues/Declining Issues closed above 5,
  • Setup S2: NYSE Advancing Volume/Declining Volume closed above 10,
  • Setup S3: NYSE Advancing Issues/Declining Issues closed above 5, and NYSE Advancing Volume/Declining Volume closed above 10 -Setup S1 and S2 combinded-,
  • Setup S4: 90% up day, and a second 90% up day during the previous 2 sessions,
  • Setup S5: the ES (E-MINI S&P 500) left an unfilled gap on the upside > 1.0% (today’s low > previous session’s high),
  • Setup S6: the ES (E-MINI S&P 500) posted a higher open (than the open on the previous session), a higher high, a higher low and a higher close on three consecutive sessions,
  • Setup S7: the ES (E-MINI S&P 500) opened above the previous session’s high,
  • Setup S8: the ES (E-MINI S&P 500) closed higher > +2.0% on the same session where the VIX closed up as well,
  • Setup S9: the Nasdaq 100 closed higher on sixth consecutive sessions.

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 Thursday, July 16) immediately following those sessions where setups S1 to S8 listed above had been triggered in the past.

http://www.tradingtheodds.com/stats/2009-07-15-ES-S1-S8.png

Almost all setups are agreeing concerning their slightly negative outlook on the then following session, not that much with respect to the chances for another higher close on the then following session which are more or less even, but due to 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 like 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 Thursday, July 16) immediately following those 21 sessions where setup S3 had been triggered in the past (‘NYSE Advancing Issues/Declining Issues closed above 5, and NYSE Advancing Volume/Declining Volume closed above 10 -Setup S1 and S2 combinded- ‘).

2009-07-15-ES-S3i

With respect to setup S3 (‘NYSE Advancing Issues/Declining Issues closed above 5, and NYSE Advancing Volume/Declining Volume closed above 10 -Setup S1 and S2 combinded- ‘), it is notable that

  • the ES (E-MINI S&P 500) showed a significantly above-average tendency for some intraday follow-through on the previous session’s strength (all sessions posted a high above the previous session’s close -no unfilled opening gap on the downside-, with an average intraday high of +1.05% above the previous session’s close), but
  • upside potential on the close and close versus open is regularly limited to say the least, with a profit factor of 0.57 on the close and 0.38 on the close verus open only. Up to now although chances for another higher close are even (11 higher and 10 lower closes the next day), the ES (E-MINI S&P 500) never closed up +1.0% or more on the then following session, and on average closed -0.40% below the open.

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Bottom line:

With respect to Thursday’s session and based on the respective probabilities and odds concerning those setups which were triggered on Wednesday’s close, the outlook concerning the ES’ (E-MINI S&P 500) performance is slightly negative (not so much with respect to the chances for another higher close, but with respect to the ES‘ (E-MINI S&P 500) expectancy which is well below-average). Although we might see some follow-through of Wednesday’s strength during Thursday’s session, upside potential on the close will probably be limited.

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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