Daily Commentary - Posted on Thursday, March 4, 2010, 6:35 AM GMT +1

5 Comments


Mar Thursday 4

TRADING THE ODDS on Thursday, March 4

With Wednesday’s session, the SPY posted a second consecutive higher close, but closed below the open (a black ‘candle‘) on both sessions.

Although initially one might consider this market behaviour as a short-term bearish pattern, historical occurrences and respective probabilities and odds tell a different story.

Table I below shows the SPY‘s historical intraday performance (since 01/01/1990) on the  the intraday low, during the first hour of the session, at the start of the last hour in comparison to the previous session’s closeduring the last hour of the session and on the close whenever the SPY had posted two consecutive higher closes in the past, but closed below the open (a black ‘candle‘) on both sessions:

Interesting to note that historically on the then following session (in this event on Thursday, March 4), the SPY

  • left an unfilled opening gap up (an intraday low above the previous session’s close) buyers on 9 out of 27 occurrences (every third session), significantly above the at-any-time odds for leaving an unfilled opening gap up,
  • showed a positive performance during the first hour of the session on 25 out of 27 occurrences (historically downside momentum during the first hour was almost non-existent),
  • was trading at a higher level (in comparison to the previous session’s close) at the start of the last hour again on 25 out of 27 occurrences,
  • closed higher on 23 out of those 27 occurrences,
  • but (repeatedly after already having posted two consecutive closes below the open) showed a negative performance during the last hour of the session.

Regularly whenever the setup had been triggered in the past, the weakest part of the then following session was the open, historically providing a favorable intraday and short-term edge on the long side of the market right at the start of the session. But take into account that 27 occurrences is not something to read anything statistically relevant into it (although probabilities and odds are heavily lopsided on the bullish side at least between the open and the start of the last hour of the session), and a couple of other pattern suggest at least a modest consolidation (a down day) on Thursday’s session.

Successful trading,
Frank

P.s.: The Market Model is short going into Thursday’s session due to the fact that everything else except the pattern discussed above suggests a down day.

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Disclaimer: No position in the securities mentioned in this post 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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Comments (5)

 

  1. bill says:

    Frank,

    thanks for the post, quick question

    1. you went long because of seaonality study which says go long before job numbers are released ???

    thanks
    Bill

    • admin says:

      Bill,

      a buy signal would’ve been triggered anyway regardless of the job numbers today. Another buy signal will be triggered at today’s close in the event of a higher close today …

      Best,
      Frank

  2. bill says:

    Thanks for reply

    Seems like you went against your earlier thoughts of going long when index closes greater .5%, what made you go short.
    is it oversold levels of your indicaotrs if SO, then they were oversold even yesterday right??

    thanks again for your dedication to help the newb’s

    • admin says:

      bill,

      with SPY up greater than +1.0% on an employment report release date, since 1990 SPY closed higher on 18 and lower on 25 occurrences the next session. The respective rank of the setup’s distribution of daily returns is – with 38.42% – lopsided on the downside (means the median return is – in comparison to the at-any-time rank of the median return of 50% – skewed on the downside).

      An otherwise bullish setup (higher close on an employment report release date) -at least with respect to the probability of a higher close the next session, not necessarily with respect to the odds- turns negative with SPY up > +1.0%.

      But I don’t expect much downside on Monday’s session, it’s more a consolidation.

      Best,
      Frank

  3. kyle says:

    just wanted to clarify — when you say SPY dividend cash payment day, do you mean when it goes ex-dividend or the actual day you get the cash? If it is the ex-div day, then is the upside day the day before ex dividend (i.e. the one you have to own the spy on to get the dividend) and the downside day the ex dividend day?

    great site by the way — really appreciate your work

    Kyle

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