TRADING THE ODDS

The same procedure on Monday’s session again: from a historical and statistical perspective a negative short-term tendency, but a remarkable positive outcome (with respect to a couple of setups the first occurrence since 01/02/1990, e.g. NASDAQ Advancing Volume/Declining Volume < 0.75 on nine consecutive sessions).

The ES (E-MINI S&P 500) opened up +0.59%, posted an intraday low of +0.03% below and an intraday high of +1.31% above Friday’s close, and finally closed higher +1.28% on the day, while the Nasdaq 100 ended the session with a gain of +1.10% (S&P 500 +1.14%, DJ Ind. +1.19%, Russel 2000 +1.49%, SOX +1.25%, BKX -0.05%).

Market breadth on the NYSE was strong, with NYSE Advancing Issues/Declining Issues at 3.26 and Advancing Volume/Declining Volume at 3.29 (NYSE TRIN / Arms Index at 0.99), and NASDAQ Advancing Issues/Declining Issues at 2.11 and NASDAQ Advancing Volume/Declining Volume at 4.63 (NASDAQ TRIN at 0.45). NYSE Advancing Volume accounted for only 76.27% of NYSE volume.

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Notably on Monday’s session were the facts that

• the ES (E-MINI S&P 500) posted a higher close on the sixth consecutive session ,
• the ES (E-MINI S&P 500) posted a higher low (than the previous session’s low) on the sixth consecutive session,
• the ES (E-MINI S&P 500) posted a close above the open on the seventh consecutive session,
• the Nasdaq 100 posted a higher close on the ninth consecutive session,
• it was the ninth consecutive session on the NASDAQ with NASDAQ TRIN < 0.75 (no occurrence since 01/02/1990),
• the SOX Semiconductor Index out-performed the Nasdaq 100 on the eigth consecutive session (only 4 occurrences since 01/02/1990),
• the Banking Index BKX closed lower on a third consecutive session while the S&P 500 closed up (only 2 occurrences since 01/02/1990), and
• the ES (E-MINI S&P 500) left an unfilled opening gap on the upside (low > the previous session’s close).

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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 close on six consecutive sessions,
• Setup S2: the ES (E-MINI S&P 500) posted a higher low (than the previous session’s low) on six consecutive sessions
• Setup S3: the ES (E-MINI S&P 500) posted a close above the open on seven consecutive sessions,
• Setup S4: the Nasdaq 100 posted a higher close on nine consecutive sessions,
• Setup S5: any of Setups S1 to S4 had been triggered (S1 OR S2 OR … OR S4).

Table I shows the ES (E-MINI S&P 500) performance (since 01/02/1990) on the next session (in this event Tuesday, July 21) immediately following those sessions where setups S1 to S4 listed above had been triggered in the past.

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. Especially notable as well is the fact that the ES (E-MINI S&P 500) shows a significantly above-average tendency (89.47% compared to an at-any-time probability of 71.84%) to post at least one lower close than the trigger day’s close (not any lower close) over the course of the then following five sessions.

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 Tuesday, July 21) immediately following those 219 sessions where setup S5 had been triggered (‘any of Setups S1 to S4 had been triggered (S1 OR S2 OR … OR S4)‘), 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.

With respect to setup S5 (‘any of Setups S1 to S4 had been triggered (S1 OR S2 OR … OR S4)‘) and the ES’ (E-MINI S&P 500) intraday performance on the then following session (in this event Tuesday, July 21) in the past, it is especially notable that

• since 01/01/2005 the ES (E-MINI S&P 500) showed a significantly above-average tendency for a lower open (on 24 out of 38 occurrences) the next day,
• since 01/01/2005 the ES (E-MINI S&P 500) showed a significant tendency for leaving an unfilled opening gap on the downside (on 12 out of 38 occurrences, almost on every third session), and
• likewise the ES (E-MINI S&P 500) showed an above-average tendency for a lower close as well (on 25 out of 38 occurrences), closing up > +1.0% on only 1 occurrence and > +0.50% on only 3 occurrences.

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Bottom line:

Although the market already refused to go down when it was supposed to do so during the last couple of session, with respect to Tuesday’s session and based on the respective probabilities and odds concerning those setups which were triggered on Monday’s close, the outlook concerning the ES’ (E-MINI S&P 500) performance is negative again, and 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: Short ES (E-MINI S&P 500) at time of writing.