Daily Commentary - Posted on Wednesday, September 16, 2009, 7:21 AM GMT +1

4 Comments


Sep Wednesday 16

Trading the Odds on Wednesday – September 16, 2009

On Tuesday’s session the ES E-MINI S&P 500 posted a higher high (than the previous session’s high) on the 8th consecutive session (22 occurrences since 01/01/1990), under-performed the SPXEW S&P 500 Equal Weigthed Index on the 8th consecutive session (41 occurrences since 01/01/1990), and showed a (although marginally) positive performance (+0.02% only) during the final hour of trading on the 8th consecutive session (13 occurrences since 01/01/1990, but happened the last time on 10/05/2001) as well.

Probabilities and odds which were tilt in favor of a negative performance during the last hour of Tuesday’s session were negated at the moment when the ES E-MINI S&P 500 had posted the 8th consecutive higher high on Tuesday’s session (see my respective Twitter updates). On those sessions where the ES E-MINI S&P 500 had posted a higher high on the 8th consecutive session (like on Tuesday’s session) in the past, the ES E-MINI S&P 500 had closed up on 16 out of 22 occurrences the same day in the past, now on 17 out of 23 occurrences.

On Tuesday’s session the ES E-MINI S&P 500 opened slightly up +0.12%, posted an intraday low of -0.50% below and an intraday high of +0.81% above Monday’s close, and finally closed marginally higher +0.21% on the day, while the Nasdaq 100 closed up +0.34% (S&P 500 +0.31%, DJ Ind. +0.59%, Russel 2000 +0.80%, SOX Philadelphia Semiconductor Index +0.86%, BKX Philadelphia Bank Index +1.44%).

From today onward I won’t follow market breadth on the NYSE any longer. Due to the fact that Citigroup was down -8.85%, with 1.31 billion shares changing hands, NYSE Adv./Decl. Volume and NYSE TRIN as well were heavily lopsided on the downside. I’ll be looking for an alternative (hopefully) on par with NYSE breadth. I already started that process by using the number of those stocks listed in the S&P 500 penetrating their previous session’s high and low, and I’ll be looking for some volume related data as well.

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Tuesday’s session did not leave much to lean on short-term. Notably were the facts that

  • Setup S1: the ES E-MINI S&P 500 posted a higher high (than the previous session’s high) on the 8th consecutive session,
  • Setup S2: the ES E-MINI S&P 500 under-performed the SPXEW S&P 500 Equal Weigthed Index on the 8th consecutive session,
  • Setup S3: the ES E-MINI S&P 500 showed a positive performance during the final hour of trading on the 8th consecutive session, and
  • Setup S4: the ES E-MINI S&P 500 closed up on the first two sessions during option expiration week.

Table I shows the ES (E-MINI S&P 500) performance (since 01/01/1990) on the next session (in this event Wednesday, September 16) immediately following those sessions where setups S1 to S4 listed above had been triggered in the past.

2009-09-15-ES-S1-4

From a long-term perspective, only setup S2 (the ES E-MINI S&P 500 under-performed the SPXEW S&P 500 Equal Weigthed Index on the 8th consecutive session) shows a statistically relevant (negative) tendency on the then following session (the respective t-scores exceeds the – 1.645 mark for statistical significance, means there is a low probability only that the respective ES’ under-performance on a session after the setup 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).

But most recent occurrences tell a different, but unfortunately contradictory story.

Table II shows the ES E-MINI S&P 500 intraday performance (since 01/01/2000) 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 Wednesday, September 16) where any of setups S1 to S3 (eight consecutive sessions with a higher high, ES E-MINI S&P 500 under-performing the SPXEW S&P 500 Equal Weigthed Index or a positive final hour of the session) 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.

2009-09-15-ES-S6i

The ES E-MINI S&P 500 shows a significantly above-average negative tendency -especially on the close- whenever the ES E-MINI S&P 500 had posted eigth consecutive sessions with a … in the past. It closed lower the then following session (in this event Wednesday, September 16) on 16 out of the last 22 occurrences, and at least lower –2.0% on the last 6 occurrences (but take into accout that they all accourred in 2008 when the market was in a heavy downtrend with a significantly above-average volatility).

But setup S4 (the ES E-MINI S&P 500 closed up on the first two sessions during option expiration week) tells a completely different story.

Table III shows the ES E-MINI S&P 500 intraday performance 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 the last 11 occurrences where the ES E-MINI S&P 500 had closed up on the first two sessions during option expiration week (correctly on day 4 and 3 before option expiration Friday, but regularly a Monday and a Tuesday).

2009-09-15-ES-S4i

Although long-term probabilities and odds are mixed without any significant edge on any side of the market, the ES E-MINI S&P 500 closed up the then following session (in this event Wednesday, September 16) on all of the last 11 ocurrences, and was almost always trading higher during the first part of the session (trading above the previous session’s close at the start of the final hour of the session). In comparison when the ES E-MINI S&P 500 had closed up on a Monday and Tuesday during any week in the past, results are mixed only, and probabilities and odds are more or less even and comparable to at-any-time probabilities and odds for a higher/lower close on the then following session. So it seems there is something special about option expiration week.

________________________________

Bottom line:

At least based on historical probabilities and odds and the market’s regular performance on those sessions after any of setups S1 to S4 had been triggered on close of the previous trading day, the outlook concerning the ES E-MINI S&P 500 performance on Wednesday, September 16 is mixed due to the fact that those setups triggered on close of Tuesday’s session show contradictionary historical results.

But due to the fact that the market recently showed a remarkabe strength and regularly refused to go down although it was supposed to do, and the majority (at least the most negative) of those setups which historically showed a significantly negative tendency were triggered in 2008 within a completely different market environment, I think there is a good chance that that market might post another higher close today continuing it’s recent streak of a third higher close after it had alreaday posted 2 higher closes on day 4 and day 3 (regularly a Monday and a Tuesday during option expiration week) before option expiration.

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).

Disclaimer: No position in the securities mentioned in this post at time of writing.

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Comments (4)

 

  1. esraeli says:

    Hey Frank, where do you find these great cartoons??

  2. CarlosR says:

    Hi Frank,

    It’s great to have you back and posting regularly again — you were missed while you were away!

    I noticed you are not taking any trading positions these days. Is that because you are not confident that the market is complying with expected odds and probabilities, or some other reason?

    Thanks again for all your posts.

    • CarlosR,

      thanks.

      I always have a position in the markets, but regularly NO overnight position in US index futures due to the fact that blogging and taking directional bets in US index futures is merely a hobby and not what I’m really trading for a living. The disclaimer is for legal and informational purposes only. This has nothing to do with my confidence in the daily stats and/or tomorrows forecast.

      Best
      Frank

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