Daily Commentary - Posted on Wednesday, October 28, 2009, 10:59 AM GMT +1

2 Comments


Oct Wednesday 28

Pre-Open Highs & Lows and What They Indicate

A quick note: The ES E-MINI S&P 500 has just posted (06:35 AM CET) an intraday low of -0.75% below Tuesday’s close. Even with a GLOBEX low of > -1.0% (not exceeding -1.0% on the downside), ES E-MINI S&P 500 never (out of 26 occurrences since 01/06/2001) left an unfilled opening gap down (means there was always an intraday high during the regular session above the previous session’s close) after three consecutive sessions with a close at least -0.50% below the open (see stats below).

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You probably won’t find a lot of weblogs in the “quant analysis blogosphere” (to cite Michel Stokes at MarketSci) factoring the pre-opening GLOBEX (CME Group) session (04:30 PM CET to 04:15 PM CET next day) into their daily analysis and forecasts, but what the ES E-MINI S&P 500 and the NQ E-MINI NASDAQ 100 do (or better ‘don’t do‘) between two regular sessions (04:30 PM CET to 09:30 AM CET next day) is regularly (highly) indicative for what might (or better will probably happen or won’t happen) during the then following regular session.

On Tuesday’s session the ES E-MINI S&P 500 closed lower on the third consecutive session, and at least -0.50% below the open on the third consecutive session as well.

Table I below shows the ES E-MINI S&P 500’s intraday performance (since 01/06/2001) concerning the intraday high (regular session), the intraday low (regular session), the end of the first hour of the session (in comparison to the previous session’s close), the start of the last hour of the session (compared to the previous session’s close) and the close on those sessions (in this event Wednesday, October 28) immediately following a trading day where the ES E-MINI S&P 500 had closed lower on three consecutive sessions and did not post a pre-opening low of more than –0.50% on the then following GLOBEX session in the past (at time of writing – 05:45 AM CET – the ES E-MINI S&P 500 has not posted a GLOBEX pre-opening low of less than -0.50%).

2009-10-28-ESp1

Interesting to note that – since 01/06/2001 and with respect to the then following session (in this event Wednesday, October 28) – the ES E-MINI S&P 500

  • left an unfilled opening gap on the downside on only one out of 127 occurrences (-0.08%), but left an unfilled gap on the upside on one out of every 5 occurrences (with an average intraday low of -0.34% only compared to an at-any-time intraday low of -0.81%),
  • was trading above the previous session’s close at the end of the first hour of the then following session on 4 out of every 5 occurrences, and was trading lower -1.0% or more only once (maximum loss -1.06%),
  • was trading above the previous session’s close at the start of the last hour of the then following session on 3 out of every 4 occurrences,
  • closed (partly significantly) higher on 3 out of every 4 occurrences.

Table II below shows the ES E-MINI S&P 500’s intraday performance (since 01/06/2001) concerning the intraday high (regular session), the intraday low (regular session), the end of the first hour of the session (in comparison to the previous session’s close), the start of the last hour of the session (compared to the previous session’s close) and the close on those sessions (in this event Wednesday, October 28) immediately following a trading day where the ES E-MINI S&P 500 had closed at least -0.50% below the open on three consecutive sessions and did not post a pre-opening low of more than –0.75% on the then following GLOBEX session in the past (at time of writing – 05:45 AM CET – the ES E-MINI S&P 500 has not posted a GLOBEX pre-opening low of less than -0.50%).

2009-10-28-ESp2

Interesting to note that – since 01/06/2001 and with respect to the then following session (in this event Wednesday, October 28) – the ES E-MINI S&P 500

  • never left an unfilled opening gap on the downside out of 25 occurrences,
  • was trading above the previous session’s close at the end of the first hour of the then following session on 4 out of every 5 occurrences, and was trading lower -0.50% or more only once (maximum loss -0.85%),
  • was trading above the previous session’s close at the start of the last hour of the then following session on 7 out of every 8 occurrences,
  • closed (partly significantly) higher on 4 out of every 5 occurrences.

Needless to say that the respective t-scores significantly exceed the +1.645 mark for statistical significance, means there is a (very) low probability that the market’s outperformance on those sessions after the setup mentioned above had been triggered occurred by chance only.

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Bottom line:

At least based on historical probabilities and odds and the market’s regular performance on the session after the setup mentioned above had been triggered on close of the previous trading day and during the then following GLOBEX session respectively, the outlook concerning the ES E-MINI S&P 500 performance on Wednesday, October 28 would be positive, and would still be positive even in the event the ES E-MINI S&P 500 would post a pre-opening low on GLOBEX of up to -0.75%.

With respect to the ES E-MINI S&P 500, a favorable short-term opportunity on the long side might be provided in the event of any pre-opening weakness and/or a lower open targeting a significantly higher intraday high and probably a higher close as well.

But always keep in mind: Trading The Odds means trading probabilities, not certainties. (Almost) everything is possible, but not always probable.

Successful trading,
Frank

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Summary of potentially tradable edges for Tuesday – October 27, 2009

DATE TIME WHAT
ACTION WHY ENTRY
STOP 1)
Pos. Size 2) 3)
10/28/2009 n.a. E-MINIs LONG short-term oversold

1) the STOP may represent a buy or a sell stop ; on a long position a STOP above the ENTRY will represent a limit order (profit target achieved), a STOP below the ENTRY a stop loss order ; the inverse applies to a short position respectively
xx
2) For position sizing, optimal f (by Ralph Vince) is utilized;

optimal f = ([( win/loss ratio + 1 ) * probability of a winning trade ] – 1 ) / ( win/loss ratio ) ;
win/loss ratio = avg. gain on a winning trade / avg. loss on a losing trade ; /% simplified version ;
Pos. Size (in $) = MAX [Intraday / Overnight Initial Margin ; Maximum Losing Trade (in $) / optimal f ] ;

Margin requirements:
ES E-MINI S&P 500 (ES): Intraday Initial Margin = $2,250 ; Overnight Initial Margin = $5,625 ;
ES E-MINI Nasdaq 100 (NQ): Intraday Initial Margin = $1,750 ; Overnight Initial Margin = $3,500 ;
Russel 2000 Mini Futures (TF): Intraday Initial Margin = $2,500 ; Overnight Initial Margin = $5,000)
xx

3) Position size in units per $xxx of marginable equity; if the E-MINI S&P 500, the E-MINI NASDAQ 100 or Russel 2000 Mini Futures are utilized, the number in brackets equates to the number of contracts, otherwise to the number of leveraged Exchange-Traded Funds (ETFs) of 300% of the (inverse) performance of the underlying index, assumed a fixed marginable equity of $100,000

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Disclaimer: Long ES E-MINI S&P, long DAX (German Aktien Index) and long MDAX (German Midcaps) at time of writing.

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. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

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Comments (2)

 

  1. CarlosR says:

    Hi Frank,

    One thing has been confusing me for a while. It’s a small point, but it came up several times in your latest post, so I thought I would mention it.

    When you refer to time of day, you often use the abbreviation CET. I’m not sure exactly what you mean by that. I always thought of CET as Central European Time, but I *think* you are using it to mean what in the United States we call Eastern Standard Time. That is the time zone in which Wall Street operates, so the market opens at 9:30 am EST, for example. Is that what you mean?

    P.S. There is one additional confusing factor, which is Daylight Savings Time (DST). We are now on that, but DST changes to “regular” time this weekend, November 1. Sometimes you will see a reference to DST or EDT, but I think most people automatically know that if you say or write EST, you really mean Eastern Daylight Time when it’s in effect, and Eastern Standard Time when it’s not.

    Sorry about the long-winded explanation, I just wanted to understand your time reference better. Keep up the good work!

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