Daily Commentary - Posted on Wednesday, September 8, 2010, 9:00 AM GMT +1

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Sep Wednesday 8

Down-Day Following an Exchange Holiday

In compliance to historical probabilities and odds (see Monthly and Labor Day Seasonalities), the SPY closed lower on the fourth session of September following three consecutive higher closes (greater than +0.90%) right at the start of the month, but the magnitude of (the negative) change (-1.13%) surpassed the up to now maximum loss of -1.02% on a fourth session of a month when the SPY had closed higher on the first three sessions (45 occurrences since 1990, see my respective Twitter feed).

With respect to Wednesday, September 8, 2010, historical probabilities (winning trade) and odds (expectancy) are tilt in favor of a higher close. Table I below shows all historical occurrences and the SPY‘s next session performance (‘Daily Returns‘) assumed one went long on close of a session when the SPY had lost at least -1.00% on a session immediately following an exchange holiday in the past.

The SPY closed up the next day on 8 out of the last 9 (maximum loss -0.24%) and 17 out of the last 21 occurrences. With +1.09% the median winning trade significantly surpasses the median losing trade (-0.53%), and with distribution of returns at +72.48% almost one half of the setup’s daily returns are located in the top quartile of the at-any-time distribution of daily returns. So there is a good chance that the market might recoup at least some (if not all) of Tuesday’s losses on Wednesday, September 8, 2010.

Successful trading,
Frank

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Disclaimer: No position in the securities mentioned in this post at time of writing.

Remarks: Due to their conceptual scope – and if not explicitely stated otherwise , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in, do not use leverage (e.g. leveraged ETFs) but a marginable account is mandatory , do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility) , do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets).

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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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