Daily Commentary - Posted on Saturday, October 10, 2009, 10:29 PM GMT +1

1 Comment


Oct Saturday 10

Trading the Odds on Monday – October 12, 2009

As Michael Stokes in his latest (strongly recommended) post The State of Short-Term Mean-Reversion: September, 2009 already pointed out, short-term mean reversion is currently not the ‘play du jour‘, and instead of retracing recent gains (as historical probabilities and odds supposed), the market extended it’s streak of up to then four consecutive sessions with a higher close, and the run might not come to and end on next Monday’s session.

For the time being it seems to be wise to give recent occurrences (and respective probabilities and odds) more weight, and consequentially I’ll regularly contrast short-term with intermediate and long-term probabilities and odds in order to evaluate if – and to what extent – they may contradict  -or at best confirm – each other.

On Friday’s session the ES E-MINI S&P 500 opened lower -0.21%, posted an intraday low of -0.45% below and an intraday high of +0.45% above Thursday’s close, and finally closed higher +o.42% 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 10/09/2009 +0.42% -0.21% +0.45% -0.45% +0.21% +0.26%
S&P 500 SPX 10/09/2009 +0.56%
Dow Jones Industrial INDU 10/09/2009 +0.80%
Nasdaq 100 NDX 10/09/2009 +0.58%
Russel 2000 RUT 10/09/2009 +1.18%
Semiconductor Index SOX 10/09/2009 +3.28%
Philadelphia Bank Index BKX 10/09/2009 +1.00%
* 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 2.56 and Advancing Volume/Declining Volume at 1.48 (S&P 500 TRIN / Arms Index at 1.73).

_________________________

On Friday’s session the following setups were triggered …

No. INDEX SETUPS TRIGGERED
1 E-MINI S&P 500 posted a higher low on five consecutive sessions
2 E-MINI S&P 500 closed above the open on six consecutive sessions
3 E-MINI S&P 500 closed in the upper half of it’s daily trading range on three consecutive sessions
4 E-MINI S&P 500 closed higher on five consecutive sessions
5 E-MINI S&P 500 any setup triggered on close of Friday, October 9 (1-4 and those listed below)

* ) : the ES E-MINI S&P 500 opened above the previous open on five consecutive sessions,
*
) : the ES E-MINI S&P 500 closed higher immediately following a session with an unfilled opening gap on the upside,
*
) : the ES E-MINI S&P 500 closed above the previous session’s open on five consecutive sessions.

( * the setup doesn’t provide a statistically significant edge on any side of the market)

Table I shows the ES (E-MINI S&P 500) performance (since 01/01/2009) on the next session (in this event Monday, October 12) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

2009-10-09-ES2-S1-5

Recent occurrences (those since 01/01/2009) show a more than remarkable positive tendency not only on the then following session, but over the course of then the following five sessions as well.

Since 01/01/2009, and whenever the ES E-MINI S&P 500 had closed above the open on six consecutive sessions or closed in the upper half of it’s daily trading range on at least three consecutive sessions (indepedently from a higher or lower close, 3 and 22 occurrences respectively), the ES E-MINI S&P 500 posted a close above the trigger day’s close four and five days later at the latest on all 22 occurrences, but regularly already within the next two sessions.

Needless to say that this is in contrast to long-term (since 1990) probabilities and odds which are (slightly) tilt in favor of a negative tendency over the course of the then following five sessions.

Table II below shows the ES E-MINI S&P 500 intraday performance (since 01/01/2009) concerning the open, the first hour of the session, the (start of the) last hour of the session compared to the end of the first hour (means the ES‘ performance between the end of the first hour and the start of the last hour of the session), the last hour and the close (in chronological order) on those sessions (in this event Monday, October 12) where any of those setups listed above (even those with an *) 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.

2009-10-09-ES-S5i

While the market recently started into the then following session on a negative note, it regularly reversed course after the first hour of the session and showed a positive tendency during the second part of the session and on the close as well.

________________________________

Bottom line:

At least based on recent (!)  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 Monday, October 12 is positive (it’s not a peace of cake for me to forecast a probable higher close after the the ES E-MINI S&P 500 had already posted five consecutive higher closes), and any weakness before on, or shortly after the open might provide a buying opportunity (even if not for a positive close on Monday, then for a close above last Friday’s close at any time during the following week).

Successful trading,
Frank

If you might want to be instantly notified about what’s happening in the markets and at TRADING THE ODDS, I encourage you to subscribe to my RSS Feed or Email Feed, and (or) follow me on Twitter.

xx

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).

Add to Technorati Favorites

Comments (1)

 

  1. CarlosR says:

    “For the time being it seems to be wise to give recent occurrences (and respective probabilities and odds) more weight”

    Frank, I agree 100% with the above. Even Michael Stokes, who I follow closely, is having some trouble with his strategies (which are normally outstanding), so I think the approach of emphasizing recent data is a smart move. If there’s a new market regime emerging, even if it’s a temporary condition, this change should aid in extracting value from it.

Leave a Reply

Your email address will not be published. Required fields are marked *