Daily Commentary - Posted on Sunday, October 4, 2009, 6:58 PM GMT +1

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Oct Sunday 4

Trading the Odds on Monday – October 5, 2009

Friday’s session marked the sixth occurrence since 01/01/1990 where the ES E-MINI S&P 500 closed lower on the last two sessions of a month and the first two sessions of the then following month as well, the regularly most favorable time frame during any month. In addition, the Dow Jones Industrial now posted a negative performance during the last hour of the session on twelve sessions in a row (first occurrences since 01/01/1990).

Another outlier: Friday’s session marked the second occurrence since 01/01/1990 only where the ES E-MINI S&P 500 closed lower at least -2.50% below the previous session’s open on two consecutive sessions.

Although Friday’s session marked the first out of now 38 occurrences where the ES E-MINI S&P 500 did not post an intraday high above the previous session’s close (although it missed it by a hairbreadth of –0.12% only, and the S&P 500 and SPY in contrast did due to the fact that the ES E-MINI S&P 500’s day session ends at 4:15 PM, not 4:00 PM) when the index had closed more than -1.25% below the previous session’s low and closed in the lowest quartile of it’s daily range on the previous trading day, the favorable opportunity on the long side was presented when the index gapped lower -1.17% on the open ( see my posting Trading the Odds on Friday – October 2, 2009 ). From a risk:reward perspective a second (profitable) opportunity on the long side was presented when the ES E-MINI S&P 500 pulled back from it’s intraday high, see my respective Twitter Updates.

On Friday’s session the ES E-MINI S&P 500 opened lower -1.17%, posted an intraday low of -1.22% below and an intraday high of -0.12% below Thursday’s close (and therefore left an unfilled opening gap on the downside on the 2nd consecutive session), and finally closed lower -0.56% on the day, while the Nasdaq 100 closed lower -0.24% (S&P 500 -0.45%, DJ Ind. -0.23%, Russel 2000 -0.61%, SOX Philadelphia Semiconductor Index -1.09% , BKX Philadelphia Bank Index -0.07%).

Market breadth in S&P 500 stocks was negative again, with S&P 500 Advancing Issues/Declining Issues at 0.29 and Advancing Volume/Declining Volume at 0.43 (S&P 500 TRIN / Arms Index at 0.68).

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Notably on Friday’s session were the facts that

  • Setup S1: the ES E-MINI S&P 500 closed lower on four consecutive sessions,
  • Setup S2: the ES E-MINI S&P 500 left an unfilled opening gap down (intraday high < previous session’s close) on two consecutive sessions,
  • Setup S3: the ES E-MINI S&P 500 posted a lower low and a lower high (below the previous session’s low and high) on three consecutive sessions,
  • Setup S4: the ES E-MINI S&P 500 closed below the previous session’s open on three consecutive sessions,
  • Setup S5: the ES E-MINI S&P 500 closed below the previous session’s low on three consecutive sessions,
  • * ) : the ES E-MINI S&P 500 opened below the previous session’s open on three consecutive sessions, and
  • * ) : the ES E-MINI S&P 500 was trading below the previous session’s close at the end of the first hour on three consecutive sessions.

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

Table I shows the ES (E-MINI S&P 500) performance (since 01/01/1990) on the next session (in this event Monday, October 5) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

2009-10-02-ES2-S1-5

All of those setups listed above are agreeing concerning their positive outlook on the then following session (with respect to a considerably above-average probability for a higher close, and a profit factor significantly exceeding the at-any-time profit factor as well), and they all show a statistically significant edge on the long side of the market (the associated t-score always exceeds the +/-1.645 mark for statistical significance).

With setup S5 triggered on close of the previous session, the ‘expectancy‘ on close of the then followoing session is +0.64% (average change on the next session’s close taking into account higher and lower closes likewise, not the average winning trade only), significantly above the at-any-time ‘expectancy‘ of +0.03% (average day-to-day change on the close).

Especially setup S1 shows a significant intermediate-term edge on the long side of the market over the course of the then following 5 sessions. Since 01/01/1990 when the ES E-MINI S&P 500 had closed lower on four consecutive sessions, the index closed above the trigger day’s close (in this event 1021.75) at least once over the course of the then following five sessions on 149 out of 160 occurrences (93.12%), significantly above the 79.63% at-any-time probability for at least one higher close over the course of the then following five sessions.

The following listing summarizes the most interesting (and statistically significant) stats with respect to the ES E-MINI S&P 500 intraday performance on those sessions (in this event Monday, October 5) where setups S1 to S5 listed above had been triggered on close of the previous trading day:

Setup S1:

  1. left an unfilled opening gap on the downside (would be the third one in a row) on only 7 out of 160 occurrences, and on only 2 out of the last 69 occurrences,
  2. was trading above the previous session’s close at the end of the first hour of the then following session on 10 out of the last 11 occurrences.

Setup S2:

  1. posted a higher open on 55 and a lower open on the then following session on only 19 occurrences (chances are 3:1 for a higher open on Monday),
  2. left an unfilled opening gap on the downside (would be the third one in a row) on only 2 out of 74 occurrences (never during the last 50 occurrences, and the last time on 07/05/1996),
  3. posted a higher close on 8 out of the last 9 occurrences.

Setup S3:

  1. was trading above the previous session’s close at the start of the last hour of the then following session on 10 out of the last 11 occurrences,
  2. left an unfilled opening gap on the upside on one out of every four occurrences.

Setup S4:

  1. was trading above the previous session’s close at the end of the first hour of the then following session on 10 out of the last 10 occurrences,
  2. was trading above the previous session’s close at the start of the last hour of the then following session on 9 out of the last 10 occurrences,
  3. left an unfilled opening gap on the upside on one out of every four occurrences.

Setup S5:

  1. opened higher on 3 out of every four occurrences,
  2. left an unfilled opening gap on the downside (would be the third one in a row) on only 4 out of 98 occurrences (maximum unfilled gap -0.45%),
  3. was trading above the previous session’s close at the end of the first hour of the then following session on 9 out of the last 10 occurrences,
  4. closed higher on almost 3 out of every four 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 S5 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 Monday, October 5 is positive (again).

Additionally Thursday’s intermediate-term buy setup is still on board, calling for a close above 1027.25 at least once until Thursday, October 8 (up to now on 61 out of 66 occurrences for a historical probability of 92.42%), see Trading the Odds on Friday – October 2, 2009 (Setup S3).

Any significant follow-through of the last session’s weakness before or at the open or early during Monday’s session – assumed the ES E-MINI S&P 500 hasn’t posted an intraday high above Friday’s close up to then, but even so – will probably provide a highly favorable short-term (and intraday-only) buying opportunity (again) targeting an intraday high above Friday’s close and a higher close as well.

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 (3)

 

  1. CarlosR says:

    Frank, I know I sound like a stuck record, but this is truly excellent work you are doing — thanks so much!

  2. scorptraduh says:

    Frank,

    Thanks for all this amazing data!

    I also really enjoy the cartoons you add to each blog post. :)

    Good trading, cheers!

    Scorptraduh

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