Daily Commentary - Posted on Thursday, August 13, 2009, 7:30 AM GMT +1

No Comments


Aug Thursday 13

Trading the Odds on Thursday – August 13, 2009

Wednesday’s session (almost) perfectly complied to the probabilities and odds based on those setups which were triggered on Tuesday’s close, especially to the bullish bias beginning on close of a session immediately preceding an FOMC announcement session (Tuesday) until the start into the final hour of the FOMC announcement day’s session (see my posting Trading the Odds on Wednesday – August 12, 2009 and several Twitter Updates before the open).

The only point were probabilities and odds were a bit stressed were the fact that the market gave back -0.52% of it’s intraday gains during the last hour of the session despite the fact that whenever the ES (E-MINI S&P 500) closed lower the day prior to the FOMC announcement day and posted an intraday high of at least +1.25% on the FOMC announcement day in the past, chances were high (14 out of 19 occurrences) that the ES (E-MINI S&P 500) would trade higher during the final hour of the session as well (19 occurrences, max. loss -0.75% (means max. gain for a potential short)). But there were some early indications that something was amiss due to the fact that institutions were notably absent during the up-move until 2:15pm CET, to be recognized by relatively low volume and only 1 NYSE TICK 1-min. high above +1000 (means there was only one minute up to then where NYSE TICK posted at least one reading above +1000).

The ES (E-MINI S&P 500) opened lower -0.15% (almost at the intraday low), but immediately reversed course and went straight up for a gain of +1.08% during the first hour of the session, posted an intraday high of +1.84% above Tuesday’s close shortly after the FOMC announcement at 2:15pm CET, but reversed course again during the final hour of the session and finally closed higher +0.93% (only) on the day (cit. from Wednesday’s posting: ‘but we shouldn’t rule out the possibility that the market could give back some or all of it’s potential intraday gains (if any) during the final hour of Wednesday’s session‘), while the Nasdaq 100 closed higher +1.56% (S&P 500 +1.15%, DJ Ind. +1.30%, Russel 2000 +1.79%, SOX Philadelphia Semiconductor Index +1.77% , BKX Philadelphia Bank Index +1.68%).

Market breadth on the NYSE and NASDAQ was strong, with NYSE Advancing Issues/Declining Issues at 2.83 and Advancing Volume/Declining Volume at 4.28 (NYSE TRIN / Arms Index at 0.66), and NASDAQ Advancing Issues/Declining Issues at 2.43 and NASDAQ Advancing Volume/Declining Volume at 5.97 (NASDAQ TRIN at 0.41). NYSE Advancing Volume accounted for 80.24% of NYSE volume.

____________

Wednesday’s session did not leave much to lean on short term. Notably were the facts that

  • Setup S1: Wednesday’s session was an FOMC announcement day,
  • Setup S2: the ES (E-MINI S&P 500) closed up > +0.75% on an FOMC announcement day,
  • Setup S3: the ES (E-MINI S&P 500) lost more than -0.50% during the last hour of the session on an FOMC announcement day (independently from a higher or lower close on an FOMC announcement day).

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 above had been triggered in the past. Table I shows the ES (E-MINI S&P 500) performance (since 01/01/1990) on the next session (in this event Thursday, August 13) immediately following those sessions where setups S1 to S3 listed above had been triggered in the past.

2009-08-12-ES-S1-S3

Results are mixed, with a bullish bias on those sessions where setup S3 had been triggered on close of the previous session, but a bearish on those sessions where where setup S2 had been triggered, both with a t-score close to the +/-1.645 mark in order to achieve statistical significance (means there is a low probability only that the  respective ES’ performance on a session after those setups had been triggered on close of the previous trading day in comparison to the at-any-time/average market’s performance and the positive performance at all occured by chance only).

But even in the event the ES (E-MINI S&P 500) would follow the bullish bias of setup S3, the market regularly shows some weakness during the session, especially with respect to the average intraday low, a potential higher high and/or lower low, during the first and the last hour of the session as well.

Table II shows the ES (E-MINI S&P 500) intraday performance (since 01/02/1990) concerning the intraday low (compared to the previous session’s close), the higher high and lower low (both compared to the previous session’s intraday high and low respectively), the first hour of the session and the last hour of the session on those sessions (in this event Thursday, August 13) where  setup S3 (‘the ES (E-MINI S&P 500) lost more than -0.50% during the last hour of the session on an FOMC announcement day‘) -with an overall bullish bias on the close- had been triggered on close of the previous trading day.

2009-08-12-ES-S3i

With respect to intraday stats (low/higher high/lower low/first hour/last hour/) on those sessions (in this event Thursday, August 13) where setup S3 had been triggered on close of the previous trading day (means on an FOMC announcement day where the ES E-MINI S&P 500 lost at least –0.50% during the final hour of the session), it is especially remarkable that the ES (E-MINI S&P 500)

  • shows a significantly below-average probability to take out the previous session’s high,
  • shows a significantly below-average probability to post an intraday low above the previous session’s high,

(means while the at-any-time probability that the ES (E-MINI S&P 500) will post an intraday high and low above the previous session’s low -a higher high and low- is 51.60% and 52.41% respectively, concerning setup S3 it is only 38.71% and 40.32% respectively, means in the majority of cases the markets does not take out the previous session’s high, but undercuts the previous session’s low, both with a t-score close to or below the -1.645 mark for statistical significance)

  • regularly shows some weakness during the first hour of the session (below-average profit factor and a t-score close to the -1.645 mark), and
  • upside potential even on a higher close will probably be limited, with an average trade of +0.32% on the close.

________________________________

Bottom line:

From my perspective the outlook concerning the ES’ (E-MINI S&P 500) performance on Thursday, August 13 is mixed with a slightly positive bias, but a tradable intraday edge might be provided on the short side of the market in the event of any significant strength before or early in the session due to the fact that the market shows a tendency to reverse course (at least temporarily during the session) after a positive FOMC announcement day.

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.

Add to Technorati Favorites

Leave a Reply

Your email address will not be published. Required fields are marked *