Daily Commentary - Posted on Friday, September 25, 2009, 6:26 AM GMT +1

2 Comments


Sep Friday 25

Trading the Odds on Friday – September 25, 2009

It seems that – at least temporarily – the tide has turned: Although historical probabilties and odds were (heavily) lopsided on the upside on Wednesday’s FOMC announcement session and additionally on the then following session (today) when the ES E-MINI S&P 500 had closed lower on an FOMC announcement day, the market defied all historical probabilities and odds and closed (significantly) lower again.

The last time that the ES E-MINI S&P 500 closed lower on an FOMC announcement session and posted a loss of at least -1.25% on the then following session was on 3/31/2001.

On Thursday the ES E-MINI S&P 500 opened higher +0.07%, posted an intraday low of -1.70% below and an intraday high of +0.28% above Wednesday’s close, and finally closed lower -1.42% on the day, while the Nasdaq 100 (out-performing the S&P 500 the second day in a row) closed lower -0.84% (S&P 500 -0.95%, DJ Ind. -0.42%, Russel 2000 -1.89%, SOX Philadelphia Semiconductor Index -2.42%, BKX Philadelphia Bank Index -2.08%).

Market breadth in S&P 500 stocks was heavily lopsided on the downside again, with S&P 500 Advancing Issues/Declining Issues at 0.17 and Advancing Volume/Declining Volume at 0.16 (S&P 500 TRIN / Arms Index at 1.09). Interestingly (for a positive divergence) block trades with an up tick exceeded block trades with a down tick, and volume on block trades with an up tick exceeded volume on block trades with a down tick.

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Notably on Thursday’s session were the facts that

  • Setup S1: the ES E-MINI S&P 500 closed lower on an FOMC announcement day and on the then following session as well,
  • Setup S2: the ES E-MINI S&P 500 posted a loss of at least -0.75% on two consecutive sessions,
  • Setup S3: S&P 500 market internals were heavily lopsided on the downside (Advancing Issues/Declining Issues and Advancing Volume/Declining Volume below 0.275) on two consecutive sessions,
  • Setup S4: the Nasdaq 100 out-performed the S&P 500 on two consecutive session, with the ES E-MINI S&P 500 posting a lower close on two consecutive sessions .

Table I shows the ES (E-MINI S&P 500) performance (since 01/01/1990) on the next session (in this event Friday, September 25) immediately following those sessions where setups S1 to S4 listed above had been triggered in the past.

2009-09-24-ES-S1-5

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

Additionally remarkable is the fact that since 01/01/1990

  • with respect to setup S1 (the ES E-MINI S&P 500 closed lower on an FOMC announcement day and on the then following session as well), the ES E-MINI S&P 500 posted at least one higher close than the trigger day’s (Thursday’s) close over the course of the then following five sessions on 18 out of 19 occurrences (94.74%), and
  • with respect to setup S3 (S&P 500 market internals were heavily lopsided on the downside (Advancing Issues/Declining Issues and Advancing Volume/Declining Volume below 0.275) on two consecutive sessions), the ES E-MINI S&P 500 posted at least one higher close than the trigger day’s (Thursday’s) close over the course of the then following five sessions on 35 out of 36 occurrences (97.14%).

So there is a good chance (to say the least) that – triggered by two only slightly correlated setups – the ES E-MINI S&P 500 will close above 1,044 at least once between Friday, September 25 and Thursday, October 1.

Table II now 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 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 Friday, September 25) where any of setups S1 to S4 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.

2009-09-23-ES-S5iAltough probabilities and odds concerning the open, the last hour of the session and the close are (partly significantly) tilt in favor of a positive performance during those respective time frames, the ES E-MINI S&P 500 regularly shows some follow-through of the previous session’s weakness during the first hour of the session. So we could get a choppy start into Friday’s session (with probably a happy ending for the bulls).

Picture 1 shows distribution of the ES E-MINI S&P 500′ performance (gains and losses, close compared to the previous session’s close) on the then following session (in this event Friday, September 25) where any of setups S1 to S4 listed above had been triggered on close of the previous trading day (overall bias). The distribution is skewed to the left which means most data points (percentage performance numbers) fall to the right of the middle (positive performance, with the highest number of occurrences between +0.25% and +1.25%), and there are more exceptionally large than exceptionally small values (greater then +/-4.0%).

2009-09-23-ES-S5i2

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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 S4 listed above had been triggered on close of the previous trading day, the outlook concerning the ES E-MINI S&P 500 performance on Friday, September 25 is (remains) positive.

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 (long EDC DIREXION EMERG MKT BULL 3x).

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Comments (2)

 

  1. great work frank…i really enjoy reading your studies…adam

  2. ADD says:

    Frank,

    Sorry, don’t have twitter, but does the 7/8 Friday sell offs setup appear to have been a good long opportunity for Monday? Or does it seem there is a greater possibility of softness early session on Monday for better entry points?

    Tweet the answer if you wish. Any visibility/probabilities on follow through to next week would be great. Thanks in advance.

    Thank you,
    -A.

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