Daily Commentary - Posted on Tuesday, September 22, 2009, 6:34 AM GMT +1
Trading the Odds on Tuesday – September 22, 2009
The post had to be updated due to a data issue – the dates shown in setup S5 were the FOMC announcement days, not the pre-FOMC announcement dates – (thanks to a reader), but the positive outlook with respect to Tuesday’s close will not change due to the fact that the ‘real’ pre-FOMC announcement days show a significantly above-average positive tendency on the close as well. I’m sorry for the necessary update.
It seems the best bears can hope for these days is a temporary setback of a couple of index points sometime during the session (and a flat, at the utmost a slightly lower close).
An otherwise reliable sell signal (the S&P 500 closed higher on Triple Witching Friday) – 18 lower closes out of the last 22 occurrences – was more or less flattened by a recently bullish setup (S&P 500 TRIN closed above 1.50 in regularly negative territory despite a higher close for the S&P 500) – 12 higher closes out of the last 13 occurrences since 07/14/2009 – (see my posting Trading the Odds on Monday – September 21, 2009), but at least it formally complied to historical probabilities and odds and will show 19 out of 23 lower closes the next time the Triple Witching Friday setup will be triggered.
On Monday’s session the ES E-MINI S&P 500 opened lower -0.57%, posted an intraday low of -0.85% below and an intraday high of +0.16% above Friday’s close, and finally closed almost unchanged -0.07% on the day, while the Nasdaq 100 closed up +0.37% (S&P 500 -0.37%, DJ Ind. -0.42%, Russel 2000 -0.31%, SOX Philadelphia Semiconductor Index -0.02%, BKX Philadelphia Bank Index -0.48%).
Market breadth in S&P 500 stocks was mixed (but showed a positive divergence, see setup S4 below), with S&P 500 Advancing Issues/Declining Issues at 0.42 and Advancing Volume/Declining Volume at 1.00 (S&P 500 TRIN / Arms Index at 0.42). Block trades with an up tick (almost) matched block trades with a down tick, and volume on block trades with an up tick matched volume on block trades with a down tick as well on the second consecutive session (the difference falls below +/- 2%).
Notably on Monday’s session were the facts that
- Setup S1: the ES E-MINI S&P 500 posted a lower close on the 3rd consecutive session,
- Setup S2: the ES E-MINI S&P 500 closed almost unchanged on the 3rd consecutive session (within a +/- 0.25% range),
- Setup S3: the ES E-MINI S&P 500 closed almost unchanged +/- 0.50% on the 3rd consecutive session while trading at or near a 50-day high (max. -2.5% below),
- Setup S4: S&P 500 TRIN closed below 0.50 (in regularly positive territory) despite a lower close for the S&P 500, and
- Setup S5: the next session (September 22) will be an pre-FOMC announcement day.
Table I shows the ES (E-MINI S&P 500) performance (since 01/01/1990) on the next session (in this event Tuesday, September 22) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.
(Almost) all of those setups listed above are agreeing concerning their at least slightly positive outlook on the then following session, and especially setup S1 and S5 provide a statistically relevant edge on the long side of the market (the associated t-score is close to or exceeds the +1.645 mark for statistical significance).
If you’d like to take a deeper dive into trading the markets based on statistical analysis, take a look at David Varadi’s blog CSS Analytics (highly recommended).
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 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 22) where S5 (the next session will be an pre-FOMC announcement day) had been triggered in the past.
At least based on historical probabilities and odds and the market’s regular performance on those sessions after any of setups S1 to S5 had been triggered on close of the previous trading day, the outlook concerning the ES E-MINI S&P 500 performance on Tuesday, September 22 is positive.
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).
Disclaimer: No position in the securities mentioned in this post at time of writing (but short volatility).