Daily Commentary - Posted on Wednesday, October 7, 2009, 11:50 PM GMT +1

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Oct Wednesday 7

Trading the Odds on Thursday – October 8, 2009

Against all odds‘ the ES E-MINI S&P 500 posted it’s third consecutive higher close on Wednesday’s session, but at least provided the favorable opportunity on the short side when the ES E-MINI S&P 500 was trading higher +0.50% above Tuesday’s close before the open (see my Twitter Updates and my posting Trading The Odds On Wednesday – October 7, 2009 ), but posted the expected intraday low below Tuesday’s close during the regular session.

On Wednesday’s session the ES E-MINI S&P 500 opened lower -0.05%, posted an intraday low of -0.21% below and an intraday high of +0.57% above Tuesday’s close, and finally closed higher +0.48% on the day.

Index / Future / ETF Symbol Date Change (%)
E-MINI S&P 500 (Future *) ESZ9 10/07/2009 +0.48%
S&P 500 SPX 10/07/2009 +0.27%
Dow Jones Industrial INDU 10/07/2009 -0.06%
Nasdaq 100 NDX 10/07/2009 +0.30%
Russel 2000 RUT 10/07/2009 +0.02%
Semiconductor Index SOX 10/07/2009 -0.61%
Philadelphia Bank Index BKX 10/07/2009 +1.16%
* at 04:15 PM CET

Market breadth in S&P 500 stocks was slightly positive, with S&P 500 Advancing Issues/Declining Issues at 1.12 and Advancing Volume/Declining Volume at 1.05 (S&P 500 TRIN / Arms Index at 1.06).

Institutions and commercial traders were (again) notably absent on Wednesday’s session. The total number of block trades and non-block trades as well as total volume on block trades and non-block trades in all listed stocks posted a 10-day low.

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Notably on Wednesday’s session were the facts that

  • Setup S1: the ES E-MINI S&P 500 opened higher (than the previous session’s open) now on three consecutive sessions,
  • Setup S2: the ES E-MINI S&P 500 posted an intraday low at least +0.50% above the previous session’s low on three consecutive sessions,
  • Setup S3: the ES E-MINI S&P 500 closed higher at least +1.00% above the previous session’s open on three consecutive sessions,
  • Setup S4: the ES E-MINI S&P 500 closed higher now on three consecutive sessions,
  • Setup S5: the ES E-MINI S&P 500 was trading higher during the first hour of the session now on four consecutive sessions,

* ) : the ES E-MINI S&P 500 posted an intraday intraday high at least +0.50% above the previous session’s close on three consecutive sessions,
* ) : the ES E-MINI S&P 500 closed higher at least +1.00% above the previous session’s low on three consecutive sessions,
* ) : the ES E-MINI S&P 500 closed above the open at least +0.50% on four consecutive sessions,

( * the setup – although showing a negative 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 Thursday, October 8) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

2009-10-07-ES2-S1-5

Unfortunately signals are mixed and partly contradictory, and none of those signals triggered on Wednesday’s close provides – with respect to long-term probabilities and odds (more on that later) – a statistically significant edge on any side of the market due to the fact that the associated t-scores (vs. chance) do not exceed the +/- 1.645 mark for statistical significance (although setups S2 and S5 are close, but on the opposite side of the market, while setup S2 at least shows a statistically relevant under-performance in comparison to a buy-and-hold approach).

But looking at most recent occurrences, 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 low, the first hour of the session, the (end of the) first hour of the session compared to the previous session’s close and the close (in chronological order) on those sessions (in this event Thursday, October 8) where setup S5 (‘the ES E-MINI S&P 500 was trading higher during the first hour of the session on four consecutive sessions‘) had been triggered on close of the previous trading day.

2009-10-07-ES-S5i

It is especially remarkable that after trading higher during the first hour of the session four days in a row, and with respect to the then following session (in this event Thursday, October 8), since 01/01/1990 the ES E-MINI S&P 500

  • opened higher on the last 7 occurrences, on 10 out of the last 11 occurrences and 16 out of the last 19 occurrences, even during recent bear market phases (2008),
  • never opened lower more than -0.58% on the last 100 occurrences, and posted a maximum loss on the open of -1.33% on all 264 occurrences,
  • left an unfilled opening gap up on 6 out of the last 11 occurrences (way above the at-any-time probability for leaving an unfilled opening gap up),
  • but shows a negative tendency during the first hour of the then following session, trading lower during the first hour on the last 7 occurrences, on 9 out of the last 10 occurrences and 13 out of the last 16 occurrences, and finally
  • closed higher on 9 out of the last 11 occurrences.

And with respect to setups S4‘s negative tendency on the then following session, it is at least notably that the ES E-MINI S&P 500 did not post a loss on the close of more than -0.42% on the last 16 occurrences when this setup had been triggered on close of the previous trading day, and the ES E-MINI S&P 500 opened higher on 7 out of the last 8 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 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 open and on the close of Thursday, October 8 is at least slightly positive.

An opportunity on the long side of the market might be provided in the event of some weakness before Thursday’s open (GLOBEX session) and/or at the end of the first hour of Thursday’s session, while a higher open might provide a favorable short-term opportunity on the short side of the market targeting a (significantly) lower quote at the end of the first hour of Thursday’s session.

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 short volatility / VIX futures).

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