Daily Commentary - Posted on Thursday, November 19, 2009, 11:19 PM GMT +1

1 Comment


Nov Thursday 19

TRADING THE ODDS on Friday – November 20, 2009

On Thursday’s session market internals were heavily lopsided on the downside, but nevertheless the ES E-MINI S&P 500 managed to close in the upper half of it’s daily trading range the fifth day in a row.

The ES E-MINI S&P 500 left an unfilled opening gap on the downside of -0.70%, Puts traded on an uptick (regularly purchased) outnumbered Puts traded on an downtick (regularly sold) – the first occurrence during the last 12 sessions, and only happens on approximately one out of every ten sessions -, Calls traded on a downtick (regularly sold) outnumbered Calls traded on an uptick (regularly bought) by a factor of 1.75 – the first occurrence during the last 13 sessions -, and more than 85% of all optionable stocks penetrated their previous session’s low.

2009-11-19-indices

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The following setups (among others) were triggered on Thursday’s close:

No. INDEX SETUPS TRIGGERED
1 E-MINI S&P 500 closed lower at least -1.0%, and Calls traded on a downtick outnumbered Calls traded on an uptick by a factor of 1.75
2 E-MINI S&P 500 closed lower at least -1.0%, and Puts traded on an uptick outnumbered Puts traded on an downtick
3 E-MINI S&P 500 closed lower at least -1.0%, and more than 85% of all optionable stocks penetrated their previous session’s intraday low
4 E-MINI S&P 500 closed lower at least -1.0%, and optionable stocks penetrating their previous session’s intraday low outnumbered those penetrating their previous session’s high by a factor > 8.5
5 E-MINI S&P 500 left an unfilled opening gap down of at least -0.70%

* ) : –

( * 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 on the close (since 01/01/1990) on the next session (in this event Friday, November 20) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

2009-11-19-ES-S1-5

Probabilities and odds are clearly tilt in favor of a positive performance (close) on the then following session, and the respective t-score regularly exceeds the +1.645 mark for statistical significance, means there is a low probability that the positive performance (amd out-performance of the market) occurred by chance only.

In addition, the median trade over the course of the then following 5 sessions is positive as well, partly significantly exceeding the respective at-any-time median change over the course of the then following 5 sessions (and probabilities for a higher close 2, 3, 4 and 5 sessions later exceed the respective at-any-time probability for a higher index close 2 – 5 sessions later).

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Bottom line:

At least based on historical probabilities and odds and the market’s regular performance on the session after 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 Friday, November 20 is positive, and with market internals heavily lopsided on the downside on Thursday’s session, downside potential on Friday’s seems to be limited.

A favorable short-term opportunity on the long side would be provided in the event of any pre-opening weakness on Friday’s GLOBEX session targeting a higher open and probably a higher close as well.

Successful trading,
Frank

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Summary of potentially tradable edges for Friday – November 20, 2009

DATE TIME WHAT ACTION WHY ENTRY
STOP 1)
Pos. Size 2) 3)
11/20/2009 E-MINI S&P 500 LONG see setups above

1) 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 loss order ; the inverse applies to a short position respectively
xx
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 ] ;

Margin requirements:
ES E-MINI S&P 500 (ES): Intraday Initial Margin = $2,250 ; Overnight Initial Margin = $5,625 ;
ES E-MINI Nasdaq 100 (NQ): Intraday Initial Margin = $1,750 ; Overnight Initial Margin = $3,500 ;
Russel 2000 Mini Futures (TF): Intraday Initial Margin = $2,500 ; Overnight Initial Margin = $5,000)
xx

3) Position size in units per $xxx of marginable equity; if the E-MINI S&P 500, the E-MINI NASDAQ 100 or Russel 2000 Mini Futures are 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: No positions in the securities mentioned in this post at time of writing (but short volatility).

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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Comments (1)

 

  1. CarlosR says:

    Hi Frank,

    Glad you could squeeze a full post in, in between the house construction and all your other activities. (in the meantime, the twitter updates have been quite useful)

    (By the way, I’d like to learn how to get by on just 5 hours of sleep. Actually, I’ll settle for just 6, that would be an improvement for me!)

    My question today is when we have a “one table” post, like today, we don’t have the ability to see the median values of the intraday high and low. Would it be possible to show the median for those, instead of the average? I think that would be more useful, and less subject to skewing, wouldn’t it?

    But if it means more work for you, forget it. That’s the last thing you need!

    Thanks again for everything.

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