Daily Commentary - Posted on Thursday, October 8, 2009, 11:44 PM GMT +1

5 Comments


Oct Thursday 8

Trading the Odds on Friday – October 9, 2009

On Thursday’s session the market fully complied to the positive outlook based on those setups which were triggered on Wednesday’s close ( see my posting Trading the Odds on Thursday – October 8, 2009 ).

The ES E-MINI S&P 500 (expectedly) opened higher +0.71%, posted an intraday low of +0.31% above (and therefore left an unfilled gap up on the open, with respect to the setup triggered on Wednesday’s close now on the seventh out of the last 12 occurrences) and an intraday high of +1.31% above Wednesday’s close, and finally closed higher +1.00% on the day.

Index / Future / ETF Symbol Date Close (%) Open 1) High 1) Low 1) 1st Hour 2) Last Hour 3)
E-MINI S&P 500 (Future *) ESZ9 10/08/2009 +1.00% +0.71% +1.31% +0.31% -0.05% +0.07%
S&P 500 SPX 10/08/2009 +0.75%
Dow Jones Industrial INDU 10/08/2009 +0.63%
Nasdaq 100 NDX 10/08/2009 +0.43%
Russel 2000 RUT 10/08/2009 +1.24%
Semiconductor Index SOX 10/08/2009 -0.50%
Philadelphia Bank Index BKX 10/08/2009 -0.25%
* at 04:15 PM CET 1) vs. the previous session’s close 2) 09:30-10:30 AM 3) 03:00-04:15 PM

Market breadth in S&P 500 stocks was positive, with S&P 500 Advancing Issues/Declining Issues at 3.31 and Advancing Volume/Declining Volume at 2.64 (S&P 500 TRIN / Arms Index at 1.25).

_________________________

Notably on Thursday’s session were the facts that

No. INDEX SETUPS TRIGGERED
1 E-MINI S&P 500 left an unfilled opening gap on the upside
2 E-MINI S&P 500 closed higher on four consecutive sessions
3 E-MINI S&P 500 posted a higher low on four consecutive sessions
4 E-MINI S&P 500 closed above the open on five consecutive sessions
5 E-MINI S&P 500 closed up >= +0.75%, and the S&P 500 out-performed the $BKX and $SOX by at least +1.0%

* ) : the ES E-MINI S&P 500 opened above the previous open on four consecutive sessions,
* ) : the ES E-MINI S&P 500 closed at least +1.0% above the previous open on four consecutive sessions,

( * the setup – although showing a negative bias – doesn’t provide a statistically significant edge)

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Table I shows the ES (E-MINI S&P 500) performance (since 01/01/2000) on the next session (in this event Friday, October 9) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

2009-10-08-ES2-S1-5

All of those setups listed above are agreeing concerning their negative outlook on the then following session (not with respect to an above or below-average probability for a higher/lower close, but the profit factor regularly significantly undercuts the at-any-time profit factor), and they all show a statistically notably edge on the short side of the market (the associated t-score is either close to or exceeds the -1.645 mark for statistical significance).

The most interesting setup is probably provided by the fact that although the ES E-MINI S&P 500 closed with a solid gain of at least +1.0%, the Banking and Semiconductor Index significantly under-performed the S&P 500 by a wide margin of at least 1.0%.

Table II below shows the ES E-MINI S&P 500 intraday performance (since 01/01/1990) concerning the open, the intraday high, the intraday low, the (start of the) last hour of the session compared to the previous session’s close and the close (in chronological order) on those sessions (in this event Friday, October 9) where setup S5 (‘the ES E-MINI S&P 500 closed higher at least +0.75% on a session where the Banking and Semiconductor Index under-performed the S&P 500 by at least 1.0%‘) had been triggered on close of the previous trading day.

2009-10-08-ES-S5i

It is especially remarkable that – with respect to the then following session (in this event Friday, October 9) – the ES E-MINI S&P 500

  • left an unfilled opening gap on the downside on 5 out of 15 occurrences (way above the at-any-time probability for leaving an unfilled opening gap down),
  • was trading (significantly) below the previous session’s close at the start of the last hour on 7 out of the last 8 occurrences,
  • closed lower on 11 out of 15 occurrences and on 7 out of the last 8 occurrences, and finally
  • showed a significantly above-average volatility on the then following session due to the fact that the majority of occurrences happened in the second half of 2008 (only 25 out of 75 performance figures listed above are within a +/-1.0& range, while 27 performance figures are outside the +/-2.0% range).

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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 those setups listed above had been triggered on close of the previous trading day, the outlook concerning the ES E-MINI S&P 500 performance on the close of Friday, October 9 is negative.

An opportunity on the short side of the market might be provided in the event of any follow-through of Thursday’s strength before, at or shortly after Friday’s open.

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 (but long volatility / VIX futures).

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Comments (5)

 

  1. CarlosR says:

    Hi Frank,

    I notice that you’ve been publishing TtO on an evening schedule lately. I don’t know if this is a temporary change or a permanent one, but I just wanted to say it is much appreciated over on this side of the pond!

    • CarlosR,

      it depends. I get a small portion of the data not before midnight (US local time, approximately 06:00 AM German local time). If the next session’s outlook will probably depend on that data (or if I’ve to go to bed earlier once in a while), it will be published shortly after midnight (US local time), but in the future I’ll try to regularly publish TtO approximately 2 hours after the close.

      Best,
      Frank

  2. ADD says:

    Dear Frank,

    Thanks for everything. We really appreciate your hard work.

    The “Index / Future / ETF” table is a nice touch also.

    Okay, if this is too much to ask then please disregard: How difficult would it be to include a window into “Trading the Odds on X + 1”? For instance, pondering two scenarios for Monday by leveraging the historical probabilities and odds we know about Friday and assuming a session which complies and one which doesn’t.

    Thanks for your consideration as this may assist your patrons who swing trade while not impacting those who day trade.

    Best wishes trading.

    Sincerely,
    -A.

    • ADD,

      excellent idea, and it wouldn’t be for the additional work, but the problem is that’s almost impossible due to the fact that I’d have to differentiate between potential different cases by a dozen.

      If for example the market would’ve already posted 3 consecutive higher closes, it seems to be easy to differentiate between a fourth higher close and a lower close on the then following session, but even a higher close (the fourth one in a row) could’ve bullish implications (despite an otherwise regularly negative outlook on session 5) if it happens in conjunction with an xth consecutive session with a positive performance during the 1st hour of the session, impressive breadth stats, a lower open, out-performance of one index in comparison to another and so on.

      So it would never be black or white.

      If it would or will be possible, I’ll do so.

      Best,
      Frank

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