Daily Commentary - Posted on Thursday, February 11, 2010, 12:28 PM GMT +1
President's Day – But Not For The Markets
In full compliance to historical probabilites and odds, US major market closed lower on last Monday’s session immediately following a session where the SPY had posted an intraday low at least -1.75% below the previous sessions close, but closed positive on the day (see my posting Recovery Days and Short-Term Outlook).
Another interesting calendar (exchange holiday) effect will be triggered on today’s (Thursday’s) close.
Table I below shows the SPY‘ historical performance (since 01/01/1990) over the course of the then following five sessions assumed one would’ve bought the SPY on the close two sessions (like today) before the US markets will be closed due to the President’s Day holiday (next Monday).
Interesting to note that the SPY closed lower on the then following session (the session immediately preceding the President’s Day holiday) on 17 out of the last 20 occurrences, and posted at least one lower close than the trigger day’s close (Thursday’s close) over the course of the then following five sessions on 18 out of those 20 occurrences for a probability of 90.00%, significantly above the at-any-time probability of 71.12% for at least one lower close over the course of the then following five sessions (those two occurrences where the SPY never looked back over the course of the next five sessions are marked with an asterisk).
In addition, the setup related probability (60.00%) for posting at least one higher high over the course of the then following five sessions significantly undercuts the respective at-any-time probability of 78.29%, while the setup related probability (80.00%) for posting at least one lower low over the course of the then following five sessions significantly exceeds the respective at-any-time probability of 70.13%
Especially with respect to those sessions immediately preceding and following the President’s Day, with a Profit Factor never exceeding 0.30, Distribution of Returns barely exceeding the 40.00% mark (the median trade shows a significantly lower rate of return / negative magnitude of change than the median trade (=50%) within the at-any-time distribution of daily returns, and Top 10% Winners and Top 10% Losers significantly below /above the appropriate percentage of 10% (means a lot more than approprite are among the top 10% of the worst performing at-any-time sessions, and a lot less than approprite are among the top 10% of the best performing at-any-time sessions since 1990), odds are lopsided in favor of a negative outcome – or at least pointing to limited upside potential – in the Friday to next Wednesday’s time frame.
But the problem with those calendar effects is to find a reasonable, market related justification why probabilities and odds are sometimes skewed in one or the other direction.
Disclaimer: No position in the securities mentioned in this post at time of writing.
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