Daily Commentary - Posted on Sunday, September 6, 2009, 10:23 PM GMT +1

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Sep Sunday 6

Trading the Odds on Tuesday – September 8, 2009

I’m back from vacation, and although there were some ups and downs during the last two weeks, the S&P 500 is trading almost unchanged to the level where it was trading on August 21 when I started my short break.

On Friday’s session the ES (E-MINI S&P 500) opened higher +0.22%, posted an intraday low of -0.10% below and an intraday high of +1.45% above Thursday’s close, and finally closed higher +1.22% on the day, while the Nasdaq 100 closed up +2.00% (S&P 500 +1.31%, DJ Ind. +1.03%, Russel 2000 +1.42%, SOX Philadelphia Semiconductor Index +2.68%, BKX Philadelphia Bank Index +1.39%).

Market breadth on the NYSE and NASDAQ was strong, with NYSE Advancing Issues/Declining Issues at 4.18 and Advancing Volume/Declining Volume at 6.93 (NYSE TRIN / Arms Index at 0.60), and NASDAQ Advancing Issues/Declining Issues at 2.90 and NASDAQ Advancing Volume/Declining Volume at 6.50 (NASDAQ TRIN at 0.45). NYSE Advancing Volume accounted for 85.86% of NYSE volume.

This was the second consecutive sesssion with NYSE Advancing Issues/Declining Issues > 3, NYSE Advancing Issues/Declining Volume > 5, and NYSE Advancing Volume accounting for more than 80% of NYSE volume, but in conjunction with declining SPY and NYSE volume on both sessions, and trading volume in/on both SPY and NYSE hit a 10-day low as well (not surprisingly before a long weekend).

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Notably on Friday’s session were the facts that

  • Setup S1: the ES (E-MINI S&P 500) posted a gain on two consecutive sessions immediately preceding a long weekend (with an exchange holiday on a Friday or on a Monday),
  • Setup S2: the ES (E-MINI S&P 500) posted the 2nd consecutive session with a higher open, a higher low, a higher high (than the previous session’s low/high), and a higher close,
  • Setup S3: the ES (E-MINI S&P 500) posted a gain of at least +0.75% on 2 consecutive sessions, but in conjunction with declining SPY volume,
  • Setup S4: (NYSE Advancing Issues/Declining Issues came in > 3 and NYSE Advancing Issues/Declining Volume came in > 5) or (NYSE Advancing Volume accounted for > 80.00% of NYSE volume) on two consecutive sessions,
  • Setup S5: the ES (E-MINI S&P 500) posted a low at least +1.20% above the previous session’s low, but more than 40 stocks being part of the S&P 500 penetrated their previous session’s low (the general market strength was not as broad-based as one might have assumed, with some potential weakness beneath the surface).

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 Tuesday, September 8) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

2009-09-04-ES-S1-5

All setups are agreeing concerning their negative bias on the then following session, showing a (partly significantly) below-average probability for a higher close, a profit factor which (at least slightly) undercuts the at-any-time profit factor (sum of all winning trades divided by the sum of all losing trades), and an associated negative t-score close to or below (setup S4 and S5) the -1.645 mark for statistical significance (means there is a low probability only that the respective ES’ under-performance on a session after those setups had been triggered on close of the previous trading day in comparison to the at-any-time/average market’s performance and the negative performance at all occured by chance only).

Table II shows the ES (E-MINI S&P 500) intraday performance (since 01/01/1990) concerning the open, the first hour compared to the previous session’s close, the last hour compared to the first hour, the last hour of the session and the close (in chronological order) on those sessions (in this event Tuesday, September 8) where any of setups S1 to S5 (S1 or S2 or S3 or S4 or S5) 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.

2009-09-04-ES-S6iWith respect to intraday stats (open/first hour vs. previous session’s close/last hour vs. first hour/last hour/close/, in chronological order) on those sessions (in this event Tuesday, September 8) where any of setups S1 to S5 had been triggered on close of the previous trading day, it is especially remarkable that the ES (E-MINI S&P 500) shows a significantly above-average negative tendency (all with an associated t-score close to or exceeding the -1.645 mark for statistical significance) right from the start of the session onward, except the fact that the ES E-MINI S&P 500 regularly shows a positive tendency during the first hour of the session (temporarily recouping some of it’s losses in the event of a lower open).

In addition, when the ES (E-MINI S&P 500) had posted two higher closes immediately preceding a long weekend (with an exchange holiday on a Friday or on a Monday) in the past, since 01/01/1990 (28 occurrences) the ES E-MINI S&P 500 never opened up more than +0.42% on the session immediately following the long weekend. So any significant strength in ES E-MINI S&P 500 futures in the GLOBEX session before Tuesday’s open may provide a favorable opportunity on the short side targeting a lower open on Tuesday’s session or at least an opening quotation NOT exceeding the +0.42% mark.

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Bottom line:

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 8 is short-term negative (especially with respect to a lower open and a lower close), except a temporary positive tendency during the first hour of the session in the event of a lower open.

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 position in the securities mentioned in this post at time of writing.

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