Daily Commentary - Posted on Thursday, October 1, 2009, 6:24 AM GMT +1

No Comments


Oct Thursday 1

Trading the Odds on Thursday – October 1, 2009

On Wednesday’s roller coaster session the ES E-MINI S&P 500 not only complied to historical probabilities and odds which indicated that buying on a lower close (Tuesday’s close) immediately following a strong up-day (on Monday’s session) is  – with respect to it’s profitability – not a winning proposition (see my posting Trading the Odds on Wednesday – September 30, 2009), it additionally complied to historical occurrences as well which called for a negative performance during the last hour of the session (by the way on the 10th consecutive session now) and a lower close based on those occurrences where the ES E-MINI S&P 500 opened higher, but traded lower at least –0.50% after the first hour of the session (see my Twitter Updates).

Since 01/01/1990 there’ve been 32 occurrences where the ES E-MINI S&P 500 had sold off at least -1.50% at the first hour of the session, and interestingly  27 of those 32 occurrences happened on a higher open.

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

On Wednesday’s session the ES E-MINI S&P 500 opened higher +0.40%, posted an intraday low (during the first hour of the session) of -1.26% below and an intraday high of +0.50% above Tuesday’s close, and finally closed almost unchanged -0.07% on the day, while the Nasdaq 100 closed (almost unchanged as well) up +0.08% (S&P 500 -0.33%, DJ Ind. -0.31%, Russel 2000 -1.02%, SOX Philadelphia Semiconductor Index +0.85% , BKX Philadelphia Bank Index -0.28%).

Market breadth in S&P 500 stocks was negative, with S&P 500 Advancing Issues/Declining Issues at 0.51 and Advancing Volume/Declining Volume at 0.80 (S&P 500 TRIN / Arms Index at 0.64).

S&P 500 block trades with an up tick significantly (greater than +20%) exceeded block trades with a down tick, and volume on block trades with an up tick more than tripled (!) volume on block trades with a down tick (third occurrence since 01/01/1990). Total volume in block trades posted it’s highest reading of the last 8 sessions. In addition, volume on block trades with an up tick among all listed stocks more than doubled volume on block trades with a down tick (28 occurrences since 01/01/1990 only). It seems that institutions / commercial traders were very active buyers especially at and after the end of of the first hour of the session.

____________

Notably on Wednesday’s session were the facts that

  • Setup S1: the ES E-MINI S&P 500 closed lower on the last two trading days of a month,
  • Setup S2: the ES E-MINI S&P 500 opened higher, but was trading lower at least -0.75% below the previous session’s close at the first hour of the session,
  • Setup S3: the ES E-MINI S&P 500 opened higher, but sold off at least -1.50% during the first hour of the session,
  • Setup S4: the ES E-MINI S&P 500 closed lower, and additionally lower at least -0.50% below the open on two consecutive sessions,
  • Setup S5: volume on block trades with an up tick among all listed stocks more than doubled volume on block trades with a down tick.

Table I shows the ES (E-MINI S&P 500) performance (since 01/01/1990) on the next session (in this event Thursday, October 1) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

2009-09-30-ES-S1-5

Two consecutive lower closes – especially on the last two sessions of a month – seems to be indicative for a probably higher close on the then following session (statistically significant with an associated t-score above the +1.645 mark), while at first glance the sell-off during the first hour of the session doesn’t seem to provide an edge on any side of the market.

I wrote ‘at first glance‘ because digging a bit deeper a different picture will be presented. Table II below shows the ES E-MINI S&P 500 intraday performance (since 01/01/1990) concerning the open, the first hour compared to the previous session’s close, the last hour compared to the previous session’s close, the last hour of the session and the close (in chronological order) on those sessions (in this event Thursday, October 1) where setups S2 (‘the ES E-MINI S&P 500 opened higher, but was trading lower at least -0.75% below the previous session’s close at the first hour of the session‘) had been triggered on close of the previous trading day.

2009-09-30-ES-S2i

It is remarkable that – with respect to the then following session (in this event Thursday, October 1) –  the ES E-MINI S&P 500

  • opened lower on 11 out of the last 13 occurrences,
  • was trading below the previous session’s close at the end of the first and the start of the last hour on almost 2 out of every 3 occurrences, and finally
  • closed lower on 9 out of the last 10 occurrences (and on the most recent 6 occurrences).

x________________________________

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 overall outlook concerning the ES E-MINI S&P 500 performance on Thursday, October 1 is slightly positive.

But the only fly in the ointment is the ES E-MINI S&P 500′ historical performance on the session immediately following a session where the ES E-MINI S&P 500 sold off during the first hour after opening higher. 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.

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.

Add to Technorati Favorites

Leave a Reply

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