TRADING THE ODDS

On Monday’s session the ES E-MINI S&P 500 fully complied to the positive outlook based on those setups which were triggered on Friday’s close (three consecutive lower closes, a lower low/high/close on two consecutive sessions, among others).

The ES E-MINI S&P 500 opened higher +0.29%, posted an intraday low of +0.26% above (and therefore left an unfilled opening gap on the upside) and an intraday high of +1.92% above Friday’s close, and finally closed significantly higher +1.75% on the day, while the Nasdaq 100 closed up +1.80% (S&P 500 +1.78%, DJ Ind. +1.28%, Russel 2000 +2.38%, SOX Philadelphia Semiconductor Index +2.06% , BKX Philadelphia Bank Index +2.84%).

Market breadth in S&P 500 stocks was heavily lopsided on the upside, with S&P 500 Advancing Issues/Declining Issues at 17.52 (95% of S&P 500 stocks closed higher) and Advancing Volume/Declining Volume at 8.20 (S&P 500 TRIN / Arms Index at 2.14).

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Notably on Monday’s session were the facts that

• Setup S1: the ES E-MINI S&P 500 left an unfilled opening gap on the upside,
• Setup S2: it was the last Monday of the month (we’re entering into the regularly favorable end-of-month time frame),
• Setup S3: market internals (breadth) were heavily lopsided on the upside (at least 95% of S&P 500 stocks closed higher),
• Setup S4: the ES E-MINI S&P 500 left an unfilled opening gap on the upside, and volume in S&P 500 stocks posted a 10-day low,
• Setup S5: the ES E-MINI S&P 500 closed up at least +1.75%, and volume in S&P 500 stocks posted a 10-day low.

Table I shows the ES (E-MINI S&P 500) performance (since 01/01/1990) on the next session (in this event Tuesday, September 29) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

Except setup S2 all of those setups listed above are agreeing concerning their slightly negative outlook on the then following session (with respect to the close), but none of them shows a statistically significant edge on any side of the market (the associated t-score does not exceed the +/-1.645 mark for statistical significance).

Table II below shows the ES E-MINI S&P 500 intraday performance (since 01/01/1990) concerning the low, the first hour of the session, the last hour compared to the first hour (means the ES‘ performance between the end of the first hour and the start of the last hour of the session), the last hour of the session and the close (in chronological order) on those sessions (in this event Tuesday, September 29) where any of setups S1 to S5 listed above had been triggered on close of the previous trading day, indicating the ‘overall‘ (including best case / worst case) bullish or bearish tendency on the then following session.

Except an at least noteworthy positive tendency during the first hour of the session (a bit of follow-through of the previous session’s strength), no significant edge during any phase of the then following session is provided. The ‘Average Trade (in %)’ is almost always close to zero, and the average winning as well as the average loosing trade with respect to the different intraday time frames almost always undercuts the respective at-any-time winning and loosing trade (for a probably tight intraday range, a trend day seems less likely). The marginally positive t-score with respect to the close is skewed by setup S2 (with approximately 50% of the total sample size / number of occurrences and a positive t-score).

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Bottom line:

With last Thursday’s intermediate long setup calling for an ES E-MINI S&P 500′ close above 1,044 on or before Thursday, October 1 now off the board, and based on historical probabilities and odds and the market’s regular performance on those session after any of setups S1 to S5 listed above had been triggered on close of the previous trading day, the overall outlook concerning the ES E-MINI S&P 500 performance on Tuesday, September 28 is mixed, probably slightly negative.

But due to the fact that historical probabilities and odds calling for a slightly negative tendency and the fact that we’re entering into the regularly favorable end-of-month time frame may flatten each other out short-term, I don’t expect any spectacular move on any side of the marklet (probably a tight intraday range, and a market taking a short-term breather) on 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 (Twitter updates are shown on the upper right section of the blog) or subscribe directly to Twitter (recommended).

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Disclaimer: The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security. No position in the securities mentioned in this post at time of writing.

Since 01/01/1990 there were only 6 occurrences (now seven out of 156 FOMC announcement sessions) where the ES E-MINI S&P 500 closed lower on an FOMC announcement session and posted a loss on the then following two sessions as well.

On Friday the ES E-MINI S&P 500 opened marginally lower -0.05%, posted an intraday low of -0.77% below and an intraday high of +0.45% above Thursday’s close, and finally closed lower -0.31% on the day, while the Nasdaq 100 closed lower -0.914% (S&P 500 -0.61%, DJ Ind. -0.44%, Russel 2000 -0.47%, SOX Philadelphia Semiconductor Index -0.62%, BKX Philadelphia Bank Index -0.88%).

Market breadth in S&P 500 stocks was lopsided on the downside again, with S&P 500 Advancing Issues/Declining Issues at 0.36 and Advancing Volume/Declining Volume at 0.33 (S&P 500 TRIN / Arms Index at 1.08). Block trades with a down tick exceeded block trades with an up tick, but volume on block trades with an up tick exceeded volume on block trades with a down tick (the second day in a row).

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Notably on Friday’s session were the facts that

• Setup S1: the ES E-MINI S&P 500 closed lower on three consecutive sessions,
• Setup S2: the ES E-MINI S&P 500 closed lower on an FOMC announcement day and on the then following two sessions as well,
• Setup S3: the ES E-MINI S&P 500 posted a lower high, a lower low (than the previous session’s high/low) and a lower close on two consecutive sessions,
• Setup S4: the ES E-MINI S&P 500 closed below the open on three consecutive sessions,
• Setup S5: the ES E-MINI S&P 500 closed lower and below the open on three consecutive sessions (setup S1 and S4 combined).
• * the ES E-MINI S&P 500 posted a lower high (than the previous session’s high) of at least -1.20% on two consecutive sessions,
• * the ES E-MINI S&P 500 showed a negative performance during the last hour of the session on seven consecutive sessions,
• * the S&P 500 out-performed the BKX Philadelphia Bank Index on three consecutive sessions,
• * the S&P 500 out-performed the $SPXEW S&P 500 Equal Weigth Index on three consecutive sessions,
• * the ES E-MINI S&P 50 closed lower on two consecutive sessions as volume on block trades with an up tick exceeded volume on block trades with a down tick (a seemingly positive divergence).

( * the setup doesn’t provide a statistically significant edge on any side of the market )

Table I shows the ES (E-MINI S&P 500) performance (since 01/01/1990) on the next session (in this event Monday, September 28) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

All of those setups listed above are agreeing concerning their positive outlook on the then following session again (with respect to a higher close), and all of them show a statistically significant edge on the long side of the market (the associated t-score exceeds the +1.645 mark for statistical significance).

But despite the fact that overall probabilities and odds are (heavily) lopsided in favor of a higher close on the then following session, Monday’s openening quotation will probably be highly indicative for the market’s performance during the session and on the close as well.

Table II below shows the ES E-MINI S&P 500 intraday performance (since 01/01/1990) concerning the low, the first hour of the session, the last hour compared to the previous session’s close, the last hour of the session and the close (in chronological order) on those sessions (in this event Monday, September 28) where any of setups S1 to S5 listed above had been triggered on close of the previous trading day AND the ES E-MINI S&P 500 opened higher on the then following session (Monday), indicating the ‘overall‘ (including best case / worst case) bullish or bearish tendency on the then following session in case of a positive open.

Especially remarkable is the fact that in case of a higher open

• on approximately one out of three occurrences, the ES E-MINI S&P 500 left an unfilled opening gap on the upside (intraday low above the previous session’s close), means the opening gap up was not filled during the session, significantly above the at-any-time probability for an unfilled opening gap on the upside,
• on five out of seven occurrences, the ES E-MINI S&P 500 was trading above the previous session’s close at the start of the last hour of the session and on the close as well,
• but the ES E-MINI S&P 500 regularly showed some follow-through of the previous sessions weakness during the first hour of the session, so chasing a higher open will probably NOT be a wise move (a favorable buying opportunity will probably be provided if the ES E-MINI S&P 500 would give back some or all of it’s potential gains on a higher open sometime during the first hour of the session).

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Table III below shows the ES E-MINI S&P 500 intraday performance (since 01/01/1990) concerning the high, the first hour of the session, the last hour compared to the first hour (means the ES‘ performance between the end of the first hour and the start of the last hour of the session) , the last hour compared to the previous session’s close and the close (in chronological order) on those sessions (in this event Monday, September 28) where any of setups S1 to S5 listed above had been triggered on close of the previous trading day AND the ES E-MINI S&P 500 opened lower on the then following session (Monday), indicating the ‘overall‘ (including best case / worst case) bullish or bearish tendency on the then following session in case of a negative open.

Especially remarkable is the fact that the market ES E-MINI S&P 500 shows a statistically significant probability and odds (the associated t-score significantly exceeds the -1.645 mark for statistical significance) for still trading below Friday’s close at the start of the last hour on Monday’s session and on the close as well (not so much with respect to the probability for a higher/lower close, but with respect to the fact that – with a profit factor of 0.55 on the close only – one would – in the long run – loose approximately two dollars for every dollar won even if the probability for a higher/lower close is about even).

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Bottom line:

At least based on historical probabilities and odds and the market’s regular performance on the session after any of setups S1 to S5 listed above had been triggered on close of the previous trading day, the overall outlook concerning the ES E-MINI S&P 500 performance on Monday, September 28 is (remains) positive.

But Monday’s open will probably be highly indicative for the market’s performance during the session and on the close as well, and it could in either case be the end of the first hour of the session which will probably provide a favorable intraday opportunity on the long side (in case of a higher open and some early weakness) or short side (in case of a lower open and a temporary run-up during the first hour of the session) of the market.

But keep in mind: Thursday’s intermediate long setup calling for an ES E-MINI S&P 500′ close above 1,044 on or before Thursday, October 1 is still on board (based on 35 out of 36 historical occurrences), so any weakness on Monday or early in the week might provide a favorable opportunity with respect to the remainder of the week.

And additionally the ES E-MINI S&P 500 closed higher on 16 out of the last 21 occurrences – including the bear market in 2008 – where the ES E-MINI S&P 50 had closed lower on two consecutive sessions as volume on block trades with an up tick exceeded volume on block trades with a down tick (although long-term no statistically relevant edge is provided).

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 (Twitter updates are shown on the upper right section of the blog) or subscribe directly to Twitter (recommended).

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Disclaimer: The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security. No position in the securities mentioned in this post at time of writing.