Daily Commentary - Posted on Wednesday, August 12, 2009, 6:46 AM GMT +1

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Aug Wednesday 12

Trading the Odds on Wednesday – August 12, 2009

Tuesday’s session finally broke the streak of 21 consecutive sessions so far where the ES (E-MINI S&P 500) didn’t loose -0.60% or more on the close and 12 consecutive session where the BKX Bank Index out-performed the ES (E-MINI S&P 500), and for the first time during the last couple of weeks the market didn’t manage to recoup the majority of it’s intraday losses into the close.

In addition it was the first time since 01/01/2000 (76 occurrences / FOMC announcement days) that the Dow Jones Industrial lost more than -1.0% during the first hour of the session on a pre-FOMC announcement day (which probably applies to the ES E-MINI S&P 500 as well due to the regularly high correlation between both indices).

Due to the fact that the official opening quatation for the Dow Jones Industrial is regularly a ‘fake’ (means there is regularly a huge deviation between the Dow Jones’ opening quatation and the ES’ E-MINI S&P 500 opening quotation, and the Dow Jones’ opening quotation regularly more ore less equals the previous close), I re-calculated the Dow Jones’ opening quotation based on the percentage-wise change of the ES’ E-MINI S&P 500 opening, so the figures should reflect the Dow Jones Industrial’s ‘real’ performance during the first hour of the session and will probably match the ES’ E-MINI S&P 500 performance during the first hour of a session very closely as well.

The ES (E-MINI S&P 500) opened lower -0.62%, posted an intraday low of -1.74% and an intraday high of -0.57% below Monday’s close (and therefore left an unfilled opening gap on the downside), and finally closed lower -1.44% on the day, while the Nasdaq 100 closed lower -0.98% (S&P 500 -1.27%, DJ Ind. -1.03%, Russel 2000 -1.70%, SOX Philadelphia Semiconductor Index -1.43%, BKX Philadelphia Bank Index -4.35%).

Market breadth on the NYSE and NASDAQ was weak, with NYSE Advancing Issues/Declining Issues at 0.37 and Advancing Volume/Declining Volume at 0.24 (NYSE TRIN / Arms Index at 1.55), and NASDAQ Advancing Issues/Declining Issues at 0.39 and NASDAQ Advancing Volume/Declining Volume at 0.28 (NASDAQ TRIN at 1.37). NYSE Declining Volume accounted for 80.63% of NYSE volume.

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Notably on Tuesday’s session were the facts that

  • Setup S1: the ES (E-MINI S&P 500) left an unfilled opening gap on the downside (intraday high < previous session’s close),
  • Setup S2: the next session (on Wednesday) will be an FOMC announcement day (2:15pm CET),
  • Setup S3: the ES (E-MINI S&P 500) closed lower on an pre-FOMC announcement day,
  • Setup S4: new 52-week lows did NOT expand neither on the NYSE nor on the NASDAQ despite a significantly lower intraday low (< -1.5%) for both indices,
  • Setup S5: the SOX Philadelphia Semiconductor Index closed lower the 5th day in a row.

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 Wednesday, August 12) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

2009-08-11-ES-S1-S5

All setups are agreeing concerning their positive bias on the then following session, with an associated t-score close to or partly significantly above (setups S2 and S3) the +1.645 mark in order to achieve statistical significance (means there is a low probability only that the ES’ above-average performance on a session after the respective 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).

Table II shows the ES (E-MINI S&P 500) intraday performance (since 01/02/1990) concerning the open, high, low and close (compared to the previous’s session close) on those sessions (in this event Wednesday, August 12) where setup S2 (‘the ES (E-MINI S&P 500) closed lower, and the next session will be an FOMC announcement day‘) had been triggered on close of the previous trading day (means on an FOMC announcement day where the ES E-MINI S&P 500 closed lower the session before).

2009-08-11-ES-S3i1

Table III now shows the ES (E-MINI S&P 500) intraday performance (since 01/02/1990) concerning the higher high, the lower low (both compared to the previous’s session intraday high and low respectively), the first hour of the session and the last hour of the session on those sessions (in this event Wednesday, August 12) where setup S2 (‘the ES (E-MINI S&P 500) closed lower, and the next session will be an FOMC announcement day‘) had been triggered on close of the previous trading day.

2009-08-11-ES-S3i2

With respect to intraday stats (open/high/low/close/close vs. open/) on those sessions (in this event Wednesday, August 12) 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 closed lower the session before), it is especially remarkable that the ES (E-MINI S&P 500)

  • opened up on 9 out of the last 11 and on 20 out of the last 25 occurrences,
  • left an unfilled gap on the downside (means the ES E-MINI S&P 500 posted an intraday high below the previous session’s close) on only 3 out of 63 occurrences,
  • posted an intraday high of at least +1.0% on the last 9 occurrences,
  • closed higher on 10 out of the last 11 occurrences, and closed above the open on 10 out of the last 11 occurrences as well,
  • the Dow Jones Industrial never posted a loss of more than -0.38% (on 63 occurrences) during the first hour of the session (and probably the ES E-MINI S&P 500 as well due to the high correlation between both indices, see my comment on top of the page),
  • shows a t-score at least close to, but regularly significantly above the +1.645 mark (in order to achieve statistical significance) on the intraday high, intraday low, close, close versus open and the first hour of the session in comparison to the respective ES’ (E-MINI S&P 500) at-any-time performance, but a alightly negative t-score on the last hour of the session.

To make a long story short: The period between the close of the session immediately preceding the FOMC announcement day (Tuesday’s close) and the start into the final hour of the FOMC announcement day’s session (Wednesday) is regularly a bullish period for the market, but even more bullish in the event the FOMC announcement day follows a session with a lower close for the ES (E-MINI S&P 500), while the final hour of the FOMC announcement day’s session shows regularly a mixed performance at best.

For those interested in the FOMC meeting calendar and respective statements:
Federal Open Market Committee (2004-2010)
and here Federal Open Market Committee (2003 and older).

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Bottom line:

From my perspective the outlook concerning the ES’ (E-MINI S&P 500) performance on Wedneday, August 12 is positive at least until 2:15pm CET (FOMC announcement), 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.

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: Long ES (E-MINI S&P 500) at time of writing.

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Comments (1)

 

  1. Toptick says:

    Excellent work. Thanks!

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