Daily Commentary - Posted on Wednesday, August 5, 2009, 8:05 AM GMT +1

6 Comments


Aug Wednesday 5

Trading the Odds on Wednesday – August 5, 2009

Tuesday’s session marked the seventeenth consecutive session where the ES (E-MINI S&P 500) didn’t loose -0.50% or more on the close.

The ES (E-MINI S&P 500) opened lower -0.50%, posted an intraday low of -0.75% below Monday’s close, but reversed course again and closed modestly higher +0.40% on the day (on the intraday high), while the Nasdaq 100 closed almost unchanged +0.02% (S&P 500 +0.30%, DJ Ind. +0.36%, Russel 2000 +0.88%, SOX +0.07%, BKX +2.65%).

Market breadth on the NYSE and NASDAQ was relatively strong, with NYSE Advancing Issues/Declining Issues at 1.59 and Advancing Volume/Declining Volume at 2.06 (NYSE TRIN / Arms Index at 0.77), and NASDAQ Advancing Issues/Declining Issues at 1.30 and NASDAQ Advancing Volume/Declining Volume at 1.26 (NASDAQ TRIN at 1.03). NYSE Advancing Volume accounted for 66.31% of NYSE volume.

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Notably on Tuesday’s close were the facts that

  • Setup S1: the ES (E-MINI S&P 500) closed higher on the fourth consecutive session,
  • Setup S2: the ES (E-MINI S&P 500) closed above the open on the third consecutive session,
  • Setup S3: NYSE Advancing Volume/Declining Issues posted a reading above 1.5 on the fourth consecutive session,
  • Setup S4: NYSE Advancing Volume/Declining Volume posted a reading above 2 on the fourth consecutive session,
  • Setup S5: Up-Volume accounted for more than 66% of NYSE Volume on the fourth consecutive session,
  • Setup S6: the BKX Banking Index didn’t post a lower close on the tenth consecutive session now,
  • Setup S7: the ES (E-MINI S&P 500) under-performed the BKX Banking Index on the seventh consecutive session,
  • Setup S8: the ES (E-MINI S&P 500) under-performed the S&P 500 Equal Weigthed Index (SPXEW) on the fourth consecutive session,

and as always

  • Setup S9: any of Setups S1 to S8 listed above had been triggered (S1 OR S2 OR … OR S8), indicating the ‘overall‘ ( including best case / worst case) bullish or bearish tendency on the then following session.

xx

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 (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 Wednesday, August 5) immediately following those sessions where setups S1 to S9 listed above had been triggered in the past.

http://www.tradingtheodds.com/stats/2009-08-04-ES-S1-S9.png

Results are mixed, and none of setups S1 to S8 shows a t-score on the close exceeding the +/- 1.645 mark for statistical significance, although setups S1 and S8 are close, but unfortunately on the opposite side of the market.

Table II now shows the ES (E-MINI S&P 500) intraday performance (since 01/01/2009) concerning the open, high, low, close (compared to the previous’s session close) and close versus open on those sessions (in this event Wednesday, August 5) immediately following those 36 sessions where setup S9 had been triggered (‘any of Setups S1 to S8 listed above had been triggered‘) in 2009, indicating the recent ‘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.

2009-08-04-ES-S9i

With respect to intraday stats (open/high/low/close/close vs. open/) concerning those sessions where setup S9 (‘any of Setups S1 to S8 listed above had been triggered‘) had been triggered on close of the previous trading day in 2009, and although there is no significant edge provided on any side of the market, it is at least notably that the ES (E-MINI S&P 500)

  • shows an above-average tendency for leaving an unfilled opening gap on the downside (on 12 out of 36 occurrences) on the then following session, and consequentially a below-average profit factor on the intraday high (sum of all percentage-wise intraday highs divided by the sum of all percentage-wise intraday losses, for statistical purposes only in order to validate and demonstrate upside potential on the intraday high),
  • shows a limited upside potential on the the close and the close versus open as well due to the fact that the average winning trade is regularly (significantly) below the respective at-any-time winning trade on the the close and the close versus open even during the recent bullish period.

________________________________

Bottom line:

We’re currently experiencing some kind of abnormal market conditions (means more than a couple of setups triggered recently were triggered only on a handful of occurrences since 01/02/1990, sometimes never before since 01/02/1990, and the market regularly rejected to go down when is was supposed to do so due to historical probabilities and odds which were sometimes significantly lopsided to the downside, and last but not least the market completely reversed it’s short-term mean reversion tendency lately), so probabilities and odds have -for the time being- to be taken with a pinch of salt (and at least positions sizing should be adjusted accordingly).

Under normal market conditions, and based on the respective probabilities and odds concerning those setups which were triggered on Tuesday’s close, the outlook concerning the ES’ (E-MINI S&P 500) performance on the next session (in this event Wednesday, August 5) is mixed with a slightly negative bias due to the regularly limited upside potential (means below-average winning expectancy, not concerning the probabilities for a higher close and/or close above the open alone).

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 (6)

 

  1. Anonymous says:

    How many days of ‘abnormality’ translate into ‘normality’?

    • Anonymous,

      ‘abnormality’ will not be count by the number of days.

      As long as the market triggers a couple of setups every day (sometimes the majority of all setups triggered) -on consecutive sessions- which -from a statistical point of view- must be defined as outliers (less than 10 occurrences out of approximately 5,000 session since 01/02/1990) and/or defies all odds (means the market regularly does the opposite of what historical probabilities and odds supposed the market ‘should’ do), I’d at least adjust position sizes accordingly.

      Examples:
      – ES E-mini didn’t close -0.50% or lower on seventeen consecutive sessions now,
      – NYSE Adv./Decl. Volume > 2 on four consecutive sessions,
      – BKX Banking Index didn’t close lower on ten consecutive sessions,
      – ES E-mini under-peformed the BKX Banking on seven consecutive sessions,
      and so on.

      Best,
      Frank

  2. be the ball says:

    I don’t want to sound like a know-it-all but in relation to your latest tweet:

    $BKX Banking Index, NYSE Adv./Decl. Volume (1.24) and NYSE TRIN (0.38) extremely skewed by $C today, up +4.92%, 613.86M shares traded. $ES_F

    I pointed out in your comments over a week ago that C was adversely skewing the adv/dec #s. It has and continues to do so on a daily basis. Pull up a chart of C alongside the data for past 2 weeks and it is crystal clear.

    I was shocked to see that you were continuing to trade off of the data when it is so clearly skewed. Maybe you missed my comment but I am glad you have now spotted it regardless.

    • be the ball,

      I didn’t miss your comments, and I still trade on NYSE TRIN signals DESPITE the fact that the indicator my currently be skewed by C.

      As I mentioned several times since 01/02/1990 there were approximately 5,000 session, and I’m quite sure that there were several hundred sessions so far where something ‘special’ happened (earnings, take-over, FOMC announcements and and and). Do you think I should leave all those sessions out or throw the respective indicators away ?

      I went long today on the NYSE Adv./Decl. Volume > 1 signal despite $ES_F lower -1.0%, knowingly that the NYSE TRIN is skewed by C. But heavy volume and an uptrending Citigroup is a positive sign anyway (investors willing to put their money at work), why should I take that with a grain of salt ?

      Don’t mistake my Twitter Update (noting the fact, nothing else) for assuming that I intented so say that NYSE TRIN would be worthless. Concerning my quantitative analysis I take what I get and do not take it into question because I know or don’t know the reason behind.

      And by the way: It has never been as lopsided as today.

      Thanks,
      Frank

  3. be the ball says:

    Frank,

    Point well taken. I agree with you as well in principle. As I noted in my first post, it would be “rationalizing an indicator” which any good technician will really try to avoid.

    However, I am also a realist, and the math tells us that unless C is delisted or rallies into the 20s again, this skew in TRIN will be “permanent”. Obviously that will eventually show in your data also.

    For myself, I use TICK and TRIN to guide trade entries. I have focused more on TICK than TRIN since I noticed the “C effect”.

    Thanks for the blog, its always an educational read….

  4. be the ball says:

    And BTW, you could pretty much go long anytime, anyplace the past 3 weeks with no rationalization whatsoever and have a winning trade….this market is total nonsense at this point

    :-)

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