Daily Commentary - Posted on Wednesday, September 15, 2010, 11:30 AM GMT +1

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Sep Wednesday 15

Outside Bar at 1-Month High

On Tuesday, September 14, the SPY (S&P 500 SPDR.) posted an intraday high at a 1-month high, but closed lower on the day on a so-called outside bar (outside days have both a higher high and a lower low than the previous session).

I thought it would be interesting to check how this pattern played out in the past, means to look for those occurrences when the SPY posted an intraday high at a 1-month high, but closed lower on the day when the intraday high and low exceeded the previous session’s high and low on the same session (outside day).

Table I below shows all historical occurrences (since 1990), the SPY‘s respective performance over the course of the then following 1 and 5 sessions and the minimum number of sessions (if any, otherwise ‘-‘) until the index posted a close above | below the trigger day’s close, assumed one went long on close of a session where the criteria listed above were met in the past (like on Tuesday, September 14).


( * = no close above the trigger day’s close during next 5 sessions )

Especially interesting is not the fact that the probability for a higher close on the then following session (like on Wednesday, September 15) is more or less even (on 35 out of 66 occurrences or 53% of the time) – means to look for the ‘if’ (… there is a higher close on the then following session) -, but to look for the ‘when‘ (… did the SPY regularly post a close above the trigger day’s close in the past), the earliest point in time or minimum number of sessions.

Since 11/27/2001, the SPY closed above the trigger day’s close already on the then following session on 22 out of those 32 occurrences (or 69% of the time), 2 sessions later on 2 occurrences, or (on 8 occurrences, or 25% of the time) – never over the course of the then following 5 sessions (means not a single higher close 3, 4 or 5 sessions later).

Out of all 66 occurrences since 1990, the SPY closed above the trigger day’s close over the course of the then following 5 sessions

  • 1 session later: on 35 occurrences (or 53% of the time),
  • 2 sessions later: on 6 occurrences (or 9% of the time),
  • 3 sessions later: on 4 occurrences (or 6% of the time),
  • 4 sessions later: on 4 occurrences (or 6% of the time),
  • 5 sessions later: on 3 occurrences (or 4.5% of the time), and
  • never: on 8 occurrences (or 25% of the time).

Conclusions:

It looks like a ‘make or break‘ decision on Wednesday, September 15. A higher close might indicate that the current up-trend is still intact, while a lower close might indicate that a short-term top could be in, and chances for a near-term close above last Tuesday’s close would be drastically decreasing (probabilities for a higher close over the course of the then following remaining 4 sessions – day 2 up to 5 – and probabilities for no higher close at all are about the same size, highly disproportional in comparison to the at-any-time probability for a higher close over the course of the then following 4 sessions).

Successful trading,

Frank

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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 and/or interest on margin, 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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(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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