Daily Commentary - Posted on Wednesday, October 14, 2009, 11:36 PM GMT +1

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Oct Wednesday 14

Trading the Odds on Thursday – October 15, 2009

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Wow ! The Nasdaq 100 now posted it’s eighth consecutive higher close, and the ES E-MINI S&P 500 posted the seventh higher close out of the last 8 sessions, both closing with impressive gains and leaving an unfilled gap (intraday low above the previous session’s high) on the upside.

Index / Future / ETF Symbol Date Close (%) Open 1) High 1) Low 1) 1st Hour 2) Last Hour 3)
E-MINI S&P 500 * ESZ9 10/14/2009 +1.78% +1.31% +1.96% +0.84% -0.32% +0.32%
S&P 500 SPX 10/14/2009 +1.75%
Dow Jones Industrial INDU 10/14/2009 +1.47%
Nasdaq 100 NDX 10/14/2009 +1.39%
E-MINI Nasdaq 100 * NQZ9 10/14/2009 +1.22% +1.36% +1.61% +0.75% -0.41% +0.09%
Russel 2000 RUT 10/14/2009 +2.00%
Semiconductor Index SOX 10/14/2009 +1.37%
Philadelphia Bank Index BKX 10/14/2009 +3.19%
* close at 04:15 PM CET 1) vs. the previous session’s close 2) 09:30-10:30 AM 3) 03:00-04:15 PM

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On Wednesday’s session the following setups were triggered …

No. INDEX SETUPS TRIGGERED
1 E-MINI S&P 500 opened higher at least +1.00% above the previous session’s high
2 E-MINI S&P 500 opened higher at least +1.25% (above the previous session’s close)
3 E-MINI S&P 500 left an unfilled gap on the upside greater than +0.50%
4 E-MINI S&P 500 left an unfilled opening gap on the upside greater than +0.75%
5 E-MINI S&P 500 closed at least +1.00% above the previous session’s high

* ) : –

( * 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 01/01/2000) on the next session (in this event Thursday, October 15) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

2009-10-14-ES1-S5

All of those setups listed above are agreeing concerning their negative outlook on the then following session (not so much 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 exceeds the -1.645 mark for statistical significance). On average the market closed lower at or around -0.50% on the then following session, and was – on average – trading lower over the course of the then following 5 sessions as well.

Table II below shows the ES E-MINI S&P 500 intraday performance (since 01/01/2000) concerning the open, the intraday low, the (end of the) first hour of the session compared to the previous close, the (start of the) last hour of the session compared to the previous close, and the close (in chronological order) on those sessions where 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.

2009-10-14-ES-S6i

Longer-term (since 01/01/2000) the ES E-MINI S&P 500 shows a significantly negative tendency on the open, the low, at the end of the first hour of the session, at the end of the last hour of the session and on the close as well.

Table III below now shows the ES E-MINI S&P 500 intraday performance (since 04/01/2009, the start of the current run-up in the markets) concerning the open, the intraday low, the (end of the) first hour of the session compared to the previous close, the (start of the) last hour of the session compared to the previous close, and the close (in chronological order) on those sessions where 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.

2009-10-14-ES-S6i2

Although short-term historical probabilities and odds are tilt in favor of a another potential gain on the close, it is at least remarkable that the ES E-MINI S&P 500 never left an unfilled gap on the upside on the then following session (in this event Thursday, October 15) on all of these 16 occurrences (low < previous close), and it never posted a gain of more than +1.0% on the close of the then following session (limited upside potential).

In addition, with setup S1 (‘the ES E-MINI S&P 500 opened higher at least +1.0% above the previous session’s high‘) triggered on the close, the ES E-MINI S&P 500 never left an unfilled gap on the upside on all 35 occurrences since 01/01/2000.

With setup S2 (‘the ES E-MINI S&P 500 opened higher at least +1.25% above the previous session’s close‘) triggered on the close, the ES E-MINI S&P 500 opened lower on 15 out of the last 17 occurrences on the then following session.

With setup S3 (‘the ES E-MINI S&P 500 left an unfilled gap on the upside greater than +0.50%‘) triggered on the close, the ES E-MINI S&P 500 opened lower on the then following session on the last 6 occurrences, and left an unfilled opening gap on the upside on only one (+0.10%) out of 33 occurrences since 01/01/2000.

With setup S4 (‘the ES E-MINI S&P 500 left an unfilled opening gap on the upside greater than +0.75%‘) triggered on the close, the ES E-MINI S&P 500 left an unfilled opening gap on the upside on only one out of 64 occurrences since 01/01/2000.

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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 close of Thursday, October 14 is mixed (longer-term negative, but short-term slightly positive). But a tradable edge is provided on the statistical observation that – short-term and longer-term – the market regularly shows some weakness before / on the open or during the first hour of the then following session, and another unfilled (opening) gap on the upside seems highly unlikely.

Successful trading,
Frank

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Summary of potentially tradable edges for Thursday – October 15, 2009

DATE TIME WHAT
ACTION WHY ENTRY
STOP 1)
Pos. Size 2) 3)
10/14/2009 04:00 PM E-MINI S&P 500 SHORT lower open next session 1089.00 (-18) $5,625

1)
  • due to the fact that the data is intended for statistical purposes only, regularly no stop is provided (if not stated otherwise) ; the trade may be closed early if the respective market environment suggests (published via Twitter)
  • the STOP may represent a buy or a sell stop ; on a long position a STOP above the ENTRY will represent a limit order (profit target achieved), a STOP below the ENTRY a stop order ; the inverse applies to a short position respectively
2) For position sizing, optimal f (by Ralph Vince) is utilized;

optimal f = ([( win/loss ratio + 1 ) * probability of a winning trade ] – 1 ) / ( win/loss ratio ) ;
win/loss ratio = avg. gain on a winning trade / avg. loss on a losing trade ;          /% simplified version
Pos. Size (in $) = MAX [Intraday / Overnight Initial Margin ; Maximum Losing Trade (in $) / optimal f ]
(Intraday Initial Margin = $2,250 ; Overnight Initial Margin = $5,625)

3) Position size in units per $xxx of marginable equity; if the E-MINI S&P 500 is utilized, the number in brackets equates to the number of contracts, otherwise to the number of leveraged Exchange-Traded Funds (ETFs) of 300% of the (inverse) performance of the underlying index, assumed a fixed marginable equity of $100,000

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Disclaimer: Short E-MINI S&P 500 at time of writing.

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. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

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