Daily Commentary - Posted on Tuesday, August 18, 2009, 6:33 AM GMT +1

2 Comments


Aug Tuesday 18

Trading the Odds on Tuesday – August 18, 2009

Monday’s session was the first 90% down day (NYSE Declining Volume accounted for more than 90% of NYSE Volume) since July 2, 2009, and the first session since July 2, 2009 where the ES (E-MINI S&P 500) left an unfilled gap on the downside (intraday high < previous session’s low) as well.

Another indication for Monday’s exceptional weakness was the fact that the market was not able to post a gain during the first hour of the session depsite probabilities and odds were (significantly) tilt in favor of a higher quote at the end of the first hour (in comparison to the open) whenever the  ES (E-MINI S&P 500) had opened at least -2.0% lower after a negative close the session before in the past, but complied to historical probabilities and odds calling for a weak last hour of the session – or at least indicating that the market would probably NOT be able recoup some of it’s intraday losses into the close again – whenever it was trading lower at least -2.50% below the previous session’s close going into the last hour.

On Monday’s session the ES (E-MINI S&P 500) gapped lower -2.14% (which almost marked the high for the day), subsequently posted an intraday low of -3.01% below Friday’s close, and finally closed lower -2.73% on the day, while the Nasdaq 100 closed lower -2.90% (S&P 500 -2.43%, DJ Ind. -2.00%, Russel 2000 -2.79%, SOX Philadelphia Semiconductor Index -2.96% , BKX Philadelphia Bank Index -4.50%).

Market breadth on the NYSE and NASDAQ was heavily lopsided on the downside (pertinent to the market’s performance), with NYSE Advancing Issues/Declining Issues at 0.13 and Advancing Volume/Declining Volume at 0.07 (NYSE TRIN / Arms Index at 1.94), and NASDAQ Advancing Issues/Declining Issues at 0.22 and NASDAQ Advancing Volume/Declining Volume at 0.07 (NASDAQ TRIN at 2.93). NYSE Declining Volume accounted for 93.07% of NYSE volume.

For the records: Monday’s sessions marked the 9th occurrence since 01/02/1990 where the ES (E-MINI S&P 500) left an unfilled opening gap on the downside (intraday high < previous session’s close) of more than -2.0%, and the 23rd occurrence since 01/02/1990 where the ES (E-MINI S&P 500) left an unfilled gap on the downside (intraday high < previous session’s low) of more than -0.70%.

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Beyond that notably on Monday’s session were the facts that

  • Setup S1: the ES (E-MINI S&P 500) posted an intraday low of more than -2.0% and -3.0% respectively on two consecutive sessions,
  • Setup S2: the ES (E-MINI S&P 500) left an unfilled gap on the downside (intraday high < previous session’s low),
  • Setup S3: the ES (E-MINI S&P 500) left an unfilled opening gap on the downside (intraday high < previous session’s close) on two consecutive sessions,
  • Setup S4: the ES (E-MINI S&P 500) posted a low below the previous session’s close on three consecutive sessions (which is a regular occurrence), but on increasing momentum (means an increasing magnitude of change on the downside),
  • Setup S5: NYSE Declining Volume accounted for more than 90% of NYSE Volume (90% Down 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 Tuesday, August 18) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

2009-08-17-ES-S1-5

All setups are agreeing concerning their positive bias on the close of the then following session due to the fact that selling pressure is regularly temporarily exhausted whenever setups S1 to S5 had been triggered in the past – at least with respect to the close of the then following session -. In addition the market shows an above-average tendency to post at least one higher close than the trigger day’s close (Monday’s close) over the course of the then following five sessions.

But the next session (in this event Tuesday’s session) is regularly a choppy one (there is regularly some follow-through of the previous session’s weakness during the next session) due to the fact that the average intraday low of setups S1 to S5 exceed the respective at-any-time intraday low on the downside, and the intraday profit factor of setups S1 to S5 as the sum of all intraday highs divded by the sum of all intraday lows does not exceed the respective at-any-time intraday profit factor as much as it does with respect to a positive close.

Table II shows the ES (E-MINI S&P 500) intraday performance (since 01/01/1990) concerning the open, the first hour of the session, the last hour of the session, the last hour compared to the first hour and the close on those sessions (in this event Tuesday, August 18) where setup S2 (‘the ES (E-MINI S&P 500) left an unfilled gap on the downside (intraday high < previous session’s low)‘) had been triggered on close of the previous trading day.

2009-08-17-ES-S2i

With respect to intraday stats (open/first hour/last hour/last hour vs. first hour/close/) on those sessions (in this event Tuesday, August 18) where setup S2 (‘the ES (E-MINI S&P 500) left an unfilled gap on the downside (intraday high < previous session’s low)‘) had been triggered on close of the previous trading day, it is especially remarkable that the ES (E-MINI S&P 500)

  • shows a significantly above-average probability (and a t-score exceeding the +1.645 mark for statistical significance) for a higher open (in every 2 out of 3 occurrences),
  • shows a significantly above-average probability (and a t-score exceeding the -1.645 mark for statistical significance) for trading lower during the first hour of the session (in every 2 out of 3 occurrences as well), and
  • shows a significantly above-average probability for trading higher going into the last hour of the session in comparison to the end of the first hour of the session (in every 2 out of 3 occurrences).

Interestingly the market’s intraday behavior on those session immediately following a day when setup S2 had been triggered on close of the previous session is representative for almost all of those setups S1 to S5 listed above and therefore not the exception but the rule.

Table III shows the ES (E-MINI S&P 500) intraday performance (since 01/01/1990) concerning the open, the first hour of the session, the last hour of the session, the last hour compared to the first hour and the close on those sessions (in this event Tuesday, August 18) where setup S4 (‘the ES (E-MINI S&P 500) posted a low below the previous session’s close on three consecutive sessions (which is a regular occurrence), but on increasing momentum (means an increasing magnitude of change on the downside) ‘) as the setup with the highest sample size had been triggered on close of the previous trading day.

2009-08-17-ES-S4i

The same pattern again: The market will probably start into the session with a higher open, but a pullback during the first hour of the session is likely as well, while the rest of the session regularly shows a positive bias.

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Bottom line:

Therefore the outlook concerning the ES’ (E-MINI S&P 500) performance on Tuesday, August 18 is positive, but with a negative bias during the first hour of the session.

Therefore a favorable opportunity on the short side of the market may be provided in the event of a higher open targeting a (significantly) lower quote after the first hour of Tuesday’s session (in comparison to the open), but an opportunity on the long side (at or around the end of the first hour of Tuesday’s session) if in fact the market would show some follow-through of Monday’s exceptional weakness during the first hour of Tuesday’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: No position in the securities mentioned in this post at time of writing.

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Comments (2)

 

  1. be the ball says:

    Short $ES_F at 981.25 on the open due to the negative bias concerning the first hour of today’s session.about 3 hours ago from TweetDeck

    I closed my long $ES_F position entered during the first hour of today’s session at 988.25. My upside target for today has been achieved. 4 minutes ago from TweetDeck

    Nice long trade but ??????

    • be the ball,

      but what ???? (is this a complaint ?)

      I already stated that I will not (be able to) report all my trades via Twitter, but my recent posting for today’s session says it all: Sell any higher open with respect to a probably weak first hour, but go long at the end of the first hour. Than I made a Twitter update that the weakness (which did not materialize to the expected extend, but at least the loss was nothing to write home about) ended early and the bullish part of the session started early.

      My target for today’s session (from a risk/reward perspective) has been achieved, the E-MINI is up +1.0%. I’ll be a buyer on any pullback and/or if NYSE Adv./Decl. Volume will be > 5 with the ES E-MINI no longer up > +1.0% at the start of the last hour (see my Twitter Update). You asked me to report my exits as well, and in this event I did (without reporting any profit or loss).

      As I already stated: The exit always depends on everyone’s own risk/reward perspective, and due to the fact that I’d NOT be a buyer with the ES E-MINI trading up > +1.0% on today’s session, there is no reason to still hold on to any existing position. And I’m still positioned on the long side of the market (short volatility).

      Best,
      Frank

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