Daily Commentary - Posted on Friday, October 2, 2009, 6:32 AM GMT +1

7 Comments


Oct Friday 2

Trading the Odds on Friday – October 2, 2009

Wednesday’s ‘fly in the ointment‘ ( see my posting Trading the Odds on Thursday – October 1, 2009 ) was obviously the prevailing theme on Thursday’s session (cit.: A lower open on Thursday’s session might be (highly) indicative that the ES E-MINI S&P 500 will probably show some follow-through of Wednesday’s weakness and might continue it’s streak of up to now 6 lower closes after setup S2 had been triggered in the past.‘).

Since 01/01/1990 there’ve been 13 occurrences only (now 14) where the ES E-MINI S&P 500 closed lower on the last 2 sessions of a month and on the first session of the then following month as well, regularly (and otherwise) a favorable time frame (above-average positive performance) for the markets.

Another outlier: It is the now the first occurrence since 01/01/1990 where the Dow Jones Industrial posted a negative performance during the last hour of the session on at least 11 consecutive sessions (10 consecutive sessions on 01/22/1991).

On Thursday’s session the ES E-MINI S&P 500 opened lower -0.40%, posted an intraday low of -2.71% below and an intraday high of -0.38% below Wednesday’s close (and therefore left an unfilled opening gap on the downside), and finally closed significantly lower -2.45% on the day, while the Nasdaq 100 closed lower -3.06% (S&P 500 -2.58%, DJ Ind. -2.09%, Russel 2000 -3.39%, SOX Philadelphia Semiconductor Index -4.84% , BKX Philadelphia Bank Index -4.98%).

Market breadth in S&P 500 stocks was heavily lopsided on the downside, with S&P 500 Advancing Issues/Declining Issues at 0.05 (1 advancing on 20 declining stocks) and Advancing Volume/Declining Volume at 0.04 (S&P 500 TRIN / Arms Index at 1.32).

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Notably on Thursday’s session were the facts that

  • Setup S1: the ES E-MINI S&P 500 lost more than -2.25% on the close, and closed in the lowest quartile of it’s daily range,
  • Setup S2: the ES E-MINI S&P 500 closed lower on three consecutive sessions,
  • Setup S3: the ES E-MINI S&P 500 closed lower, and additionally lower at least -0.50% below the open on three consecutive sessions,
  • Setup S4: the ES E-MINI S&P 500 left an unfilled opening gap on the downside (intraday high < previous session’s close),
  • Setup S5: market breadth in S&P 500 stocks was heavily lopsided on the downside (Advancing Issues/Declining Issues and Advancing Issues/Declining Volume both below 0.05),
  • Setup S6: the ES E-MINI S&P 500 closed more than -1.25% below the previous session’s low, and closed in the lowest quartile of it’s daily range,
  • Setup S7: the ES E-MINI S&P 500 closed below the previous session’s low 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, October 2) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

2009-10-01-ES-S1-5

Table II shows the ES (E-MINI S&P 500) performance (since 01/01/1990) on the next session (in this event Friday, October 2) immediately following those sessions where setups S6 to S7 listed above had been triggered in the past.

2009-10-01-ES2-S1-5

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

Especially setup S3 shows a significant edge on the long side of the market over the course of the then following 2 and 5 sessions. Since 01/01/1990 when the ES E-MINI S&P 500 had closed lower, and additionally lower at least -0.50% below the open on three consecutive sessions, the index closed higher 1 or 2 days later on 53 out of 66 occurrences (81.82%), significantly above the 65.33% at-any-time probability for a higher close 1 or 2 sessions later.

Additionally it closed above the trigger day’s close (1027.25) at least once over the course of the then following five sessions on 61 out of 66 occurrences (92.42%), likewise significantly above the 79.66% at-any-time probability for at least one higher close over the course of the then following five sessions. And up to now the setup never failed more than 2 times in a row (‘Max. Consecutive Losses‘) which is a good indication as well (among those setups which are regularly triggered on close of a session and which show a comparable number of occurrences).

Table III below shows the ES E-MINI S&P 500 intraday performance (since 01/01/1990) concerning the open, the intraday high and the intraday low (both compared to the previous session’s close), the first hour and the last hour of the session (in chronological order) on those sessions (in this event Friday, October 2) where setups S6 listed above had been triggered on close of the previous trading day (the ES E-MINI S&P 500 closed more than -1.25% below the previous session’s low, and closed in the lowest quartile of it’s daily range).

2009-10-01-ES2-S6i

It is remarkable that – with respect to the then following session (in this event Friday, October 2) – the ES E-MINI S&P 500

  • opened higher on 2 out of every 3 occurrences (but gapped significantly lower on the last 2 occurrences),
  • never left an unfilled opening gap on the downside, means out of those 37 occurrences since 01/01/1990 the ES E-MINI S&P 500 always posted an intraday high above the previous session’s close,
  • the average intraday low is -1.76% and more than doubles the at-any-time average intraday low of -0.90%, means we’ll probably see some follow-through of Thursday’s weakness sometime during Friday’s session,
  • closed higher on 3 out of every 4 occurrences (and 11 out of the last 13 occurrences).

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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 S7 listed above had been triggered on close of the previous trading day, the outlook concerning the ES E-MINI S&P 500 performance on close of Friday, October 2 is positive.

Any significant follow-through of Thursday’s weakness early in the session (e.g. right after a lower open) – assumed the ES E-MINI S&P 500 hasn’t posted an intraday high above Thursday’s close up to then – will probably provide a short-term (and intraday-only) buying opportunity targeting an intraday high above Thursday’s close and a higher close as well due to the fact that out of 37 occurrences the ES E-MINI S&P 500 has never left an unfilled gap on the downside.

In addition the ES E-MINI S&P 500′ average intraday high (+2.26%) and average winning trade on the close (+1.48%) on those sessions where setup S6 had been triggered on close of the previous trading day significantly exceeds the respective at-any-time average intraday high (+0.68) and average winning trade on the close (+0.46%) for a favorable risk:reward ratio.

Successful trading,
Frank

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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.

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Comments (7)

 

  1. wow says:

    quite an edge on the intraday highs!

    are you positive there is not some data error that got you there??

    tia

    • wow,

      a data error is always possible, therefore you may (and should) check yourself (all occurrences are listed with their respective dates).

      I just checked the most recent 3 occurrences, and at least concerning those 3 there is no data error.

      But keep in mind: I’m trading probabilities, not certainties. Nothing is guaranteed, and it is always possible that today will be the 1st out of 38 occurrences where the ES E-mini might leave an unfilled gap on the downside.

      Best,
      Frank

  2. wow says:

    i could check in 1/10 the time if you provided the text with the dates, that way i can paste them in to excel and do a lookup

    tia

    • tia,

      sorry, the data provider do not allow for publishing the raw data. You can always download the data for free at Yahoo Finance.

      I do a lot of work every day providing setups and writing about the markets, but if you query the data or if you’re unsure please check for the accuracy and completeness yourself which is fairly easy in comparison. Even a sample would do the job, takes a minute or so only.

      Best,
      Frank

      • Toptick says:

        Perhaps I misinterpret, but I think tia is asking for your tables to be published as text rather than as images, to make transfer of dates copy/paste instead of retype. If this is of interest to you, you can investigate tags for preserving formatting of your tables in html.

        • Toptick,

          you may be right, but that wouldn’t work. It would be necessary to always compare one session’s intraday high with the previous session’s close for the given dates (occurrences) in order to evaluate if -and to what extend- the ES E-mini posted an intraday high above the previous session’s close when the respective setup had been triggered. Open/High/Low/Close quotes would be mandatory.

          Best,
          Frank

  3. Toptick says:

    Excellent work. Thanks!

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