Daily Commentary - Posted on Tuesday, October 6, 2009, 11:54 PM GMT +1

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Oct Tuesday 6

Trading The Odds On Wednesday – October 7, 2009

Monday’s remarkable under-performance of the Nasdaq 100 in comparison to the S&P 500 and the historical negative tendency on the then following session ( see my posting Trading the Odds on Tuesday – October 6, 2009 ) did not prevent the bulls from driving the market up more than +1.00% again.

The ES E-MINI S&P 500 opened higher +0.63%, posted an intraday low of +0.58% above (and therefore left an unfilled opening gap on the upside) and an intraday high of +1.95% above Monday’s close, and finally closed higher +1.16% on the day.

Index / Future / ETF Symbol Date Change (%)
E-MINI S&P 500 (Future) ESZ9 10/06/2009 +1.16%
S&P 500 SPX 10/06/2009 +1.37%
Nasdaq 100 NDX 10/06/2009 +1.77%
Dow Jones Industrial INDU 10/06/2009 +1.37%
Russel 2000 RUT 10/06/2009 +1.84%
Philadelphia Bank Index BKX 10/06/2009 +0.61%
Semiconductor Index SOX 10/06/2009 +2.07%

Market breadth in S&P 500 stocks was heavily lopsided on the upside again, with S&P 500 Advancing Issues/Declining Issues at 5.96 and Advancing Volume/Declining Volume at 4.26 (S&P 500 TRIN / Arms Index at 1.40). Volume in advancing stocks accounted for 80.98% of total volume in S&P 500 stocks.

Notably: Since 01/01/1990 there were 108 occurrences of back-to-back sessions with an at least +1.00% gain on the close (ES E-MINI S&P 500), and with respect to the second trading day of those back-to-back sessions the ES E-MINI S&P 500 closed

  • in the top (4th) quartile (between 75 – 100%) of it’s daily trading range on 88 occurrences (81.48%),
  • in the 3rd quartile (between 50 – 75%) on 17 occurrences (15.74%),
  • in the 2nd quartile (between 25 – 50%) on 3 occurrences (2.78%),
  • and never in the lowest (between 0 – 25%) quartile.

Tuesday’s session marked the 4th occurrence where the ES E-MINI S&P 500 closed in the 2nd quartile of it’s daily trading range, although the supposed weakness beneath the surface doesn’t show any statistically significant edge on any side of the market on the then following session(s).

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Notably on Tuesday’s session were the facts that

  • Setup S1: the ES E-MINI S&P 500 opened higher (than the previous session’s open) more than +0.75% on two consecutive sessions,
  • Setup S2: the ES E-MINI S&P 500 posted a higher high at least +1.00% above the previous session’s high on two consecutive sessions,
  • Setup S7: the ES E-MINI S&P 500 closed higher at least +2.00% above the previous session’s low on two consecutive sessions,
  • Setup S9: the ES E-MINI S&P 500 closed above the open at least +0.50% on three consecutive sessions,
  • Setup S10: the ES E-MINI S&P 500 left an unfilled opening gap on the upside of at least +0.50%,

* : the ES E-MINI S&P 500 posted an intraday high at least +1.50% above the previous session’s close on two consecutive sessions,
* ) : the ES E-MINI S&P 500 posted an intraday low and an intraday high of at least +0.50% above the previous session’s low and high on two consecutive sessions,
* ) : the ES E-MINI S&P 500 closed higher at least +2.00% above the previous session’s open on two consecutive sessions,
* ) : the ES E-MINI S&P 500 closed higher at least +1.00% above the previous session’s high on two consecutive sessions,
* ) : the ES E-MINI S&P 500 closed higher more than +1.00% on two consecutive sessions,
* ) : S&P 500 Advancing / Declining Issues and Advancing / Declining Volume closed above 4 on two 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 Wednesday, October 7) immediately following those sessions where setups S1 to S10 listed above had been triggered in the past.

2009-10-06-ES2-S1-5

All of those setups listed above are agreeing concerning their negative outlook on the then following session (with respect to a considerably above-average probability for a lower close, and a profit factor which 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 is either close to or exceeds the -1.645 mark for statistical significance).

Notably as well is the fact that

  • with setup S2 triggered on close of the previous session, since 01/01/1990 the ES E-MINI S&P 500 left an unfilled opening gap on the upside on only 2 out of 73 occurrences (maximum intraday low +0.27%),
  • with setup S6 (‘the ES E-MINI S&P 500 closed higher at least +1.00% above the previous session’s high on two consecutive sessions‘) triggered on close of the previous session, since 01/01/1990 the ES E-MINI S&P 500 never left an unfilled opening gap on the upside (out of 30 occurrences).

This would provide an intraday opportunity on the short side of the market in the event of any significant (!) follow-through of Monday’s and Tuesday’s strength before or at the open or early during Wednesday’s session – assumed the ES E-MINI S&P 500 hasn’t posted an intraday low below Tuesday’s close up to then  at least targeting an intraday low (significantly) below Tuesday’s close.

Table II below shows the ES E-MINI S&P 500 intraday performance (since 01/01/1990) concerning the open, the low, the (end of the) first hour of the session compared to the previous session’s close, the (start of the) last hour of the session compared to the previous session’s close and the close (in chronological order) on those sessions (in this event Wednesday, October 7) where any of those setups listed (even those with an *) above 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.

2009-10-06-ES-S20i

When any of those setups listed above had been triggered on close of the previous trading day, the ES E-MINI S&P 500 – from a historically and statistically perspective – shows a (statistically significant) negative performance and an above-average downside potential on the then following session, especially with repect to the start into the session (open and the first hour) and the potential intraday low.

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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 Wedneday, October 7 is negative (again).

Any significant follow-through of the previous session’s strength before or at the open or early during Wednesday’s session – assumed the ES E-MINI S&P 500 hasn’t posted an intraday low below Tuesday’s close up to then, but even so – will probably provide a highly favorable short-term (and intraday-only) selling opportunity at least targeting an intraday low below Tuesday’s close and a potential lower 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 (but long volatility / VIX futures).

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Comments (1)

 

  1. Phantasmix says:

    I LOVE your blog.

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