Daily Commentary - Posted on Thursday, July 23, 2009, 7:48 AM GMT +1

2 Comments


Jul Thursday 23

Trading the Odds on Thursday – July 23, 2009

Although on Wednesday’s session the bulls were able again to drive the market up more than 1.0% intraday (mirroring Tuesday’s session) and it seemed that the ES (E-MINI S&P 500) would probably close up again, at the end sellers gained the upper hand, and the ES (E-MINI S&P 500) closed (modestly) lower in compliance with probabilities and odds based on those setups which were triggered on Tuesday’s close (see my posting Trading the Odds on Wednesday – July 22, 2009).

The ES (E-MINI S&P 500) opened lower -0.87% (which already marked the low for the day), reversed course right after the open and posted an intraday high of +0.24% above Tuesday’s close, but finally closed lower -0.42% on the day, while the Nasdaq 100 posted it’s eleventh consecutive session with a higher close, this time +0.77% (S&P 500 -0.05%, DJ Ind. -0.39%, Russel 2000 +0.66%, SOX +2.65%, BKX +0.95%).

In 1990 the Nasdaq 100 posted 19 consecutive sessions with a higher close (from 04/25/1990 to 05/24/1990), since 01/02/1990 the maximum number of consecutive higher closes.

Market breadth on the NYSE was positive, with NYSE Advancing Issues/Declining Issues at 1.36 and Advancing Volume/Declining Volume at 1.36 (NYSE TRIN / Arms Index at 1.00), and NASDAQ Advancing Issues/Declining Issues at 1.57 and NASDAQ Advancing Volume/Declining Volume at 1.90 (NASDAQ TRIN at 0.82). NYSE Advancing Volume accounted for 57.31% of NYSE volume. Speculative interest was running very high, with Nasdaq Volume / NYSE Volume at 220.76%. Since 02/01/1990 there were only 5 other sessions where the ratio of Nasdaq Volume / NYSE Volume closed above 220%.

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Notably on Wednesday’s session were the facts that

  • the ES (E-MINI S&P 500) posted a higher low (than the previous session’s low) on the eigth consecutive session,
  • the Nasdaq 100 posted a higher close on the eleventh consecutive session,
  • speculative interest was running very high, with Nasdaq Volume / NYSE Volume at 220.76%,
  • the Dow Jones closed lower during the final hour of the session after a series of 8 higher closes (it closed above / below the respective quotation at 3pm CET),
  • the VIX opened lower and posted a lower low and a lower high on the fourth 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: the ES (E-MINI S&P 500) posted a higher low (than the previous session’s low) on eigth consecutive sessions
  • Setup S2: the ES (E-MINI S&P 500) closed lower despite positive market breadth (NYSE Advancing Issues/Declining Issues and Advancing Volume/Declining Volume both > 1.3),
  • Setup S3: Nasdaq Volume / NYSE Volume > 220%,
  • Setup S4: the VIX opened lower and posted a lower low and a lower high on four consecutive sessions,
  • Setup S5: the Nasdaq 100 posted a higher close on eleven consecutive sessions, and
  • Setup S6: any of Setups S1 to S5 had been triggered (S1 OR S2 OR … OR S5).

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 23) immediately following those sessions where setups S1 to S6 listed above had been triggered in the past.

http://www.tradingtheodds.com/stats/2009-07-22-ES-S1-S6.png

The overall bias is mixed, setup S2 shows a significantly positive tendency while setup S3 and S5 show a significantly negative tendency on the then following session. Therefore on setup S6 (any of those setups S1 to S5 had been triggered) the t-score doesn’t show any statistically significant probability that there is an edge on either side of the market.

Remarkable is the fact that on all 14 occurrences where the Nasdaq 100 posted 11 consecutive higher closes in the past (see Setup S5), the ES (E-MINI S&P 500) posted at least one higher close above the trigger day’s close (in this event Wednesday’s close) over the course of the then following five sessions, but on 13 out of those 14 occurrences at least one lower close as well (the latter applies to setup S3 as well), both significantly above the respective at-any-time probabilities for a higher and lower close over the course of the then following five sessions. So we might experience some choppy market conditions over the course of the next couple of sessions.

Table II now shows the ES (E-MINI S&P 500) intraday performance (since 01/01/2005) 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 23) immediately following those 22 sessions (since 2005, 178 occurrences since 1990) where setup S6 had been triggered (‘any of Setups S1 to S5 had been triggered (S1 OR S2 OR … OR S5)‘), 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.

2009-07-21-ES-S6i

With respect to setup S6 (‘any of Setups S1 to S5 had been triggered (S1 OR S2 OR … OR S5)‘) and the ES’ (E-MINI S&P 500) intraday performance on the then following session (in this event Thursday, July 23) in the past (22 occurrences since 01/01/2005), it is notable that the ES (E-MINI S&P 500) shows a slightly negative tendency on the open, intraday high, intraday low, close and close versus open as well, although nothing to write home about or bet the farm on.

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Bottom line:

We’re currently experiencing some kind of abnormal market conditions, so probabilities and odds have -for the time being- to be taken with a pinch of salt (and at least positions sizing to be adjusted accordingly).

Under normal market conditions, 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 on Thursday’s session is mixed with a slightly negative tendency, so at least upside potential will probably be limited again.

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 (2)

 

  1. Russ Abbott says:

    You’ve recently indicated that the market is “experiencing some kind of abnormal market conditions.” Would you explain how you reach that conclusion and whether you’ve quantified that judgment in any way.

    Thanks.

    I continue to enjoy your blog.

    Now that I’m writing, I have another question. Where do you get the data on which to run your statistics? The basic price data is available from Yahoo, but you also look, for example, at historical TRIN data? Where do you find that?

    Thanks again.

    • Russ,

      I use several -regularly commercial- data provider. There is a long list of potential provider like eSignal, Pinnacle Data, CSI, Reuters DataLink and more.

      Concerning the abnormal market conditions:
      1) The probability for seven consecutive higher closes for the ES (8 consecutive sessions with a higher low), 11 higher closes for the NDX, the SOX out-performing the NDX on 8 consecutive session, the ES closing up depsite a lower close for the BKX on three consecutive sessions, 9 consecutive sessions with a Nasdaq TRIN below 0.75, 5 or more consecutive session with an RSI(2) above 95 (among others) is -from a historical and statistical point of view- approximately at least 2 standard deviations away from the mean (regular market behaviour with a short-term mean reversion tendency). Anything at least 2 standard deviations away from the mean is not ‘regular’ but some kind of ‘abnormal’.

      Best,
      Frank

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