Daily Commentary - Posted on Tuesday, October 5, 2010, 10:03 PM GMT +1

2 Comments


Oct Tuesday 5

SPY (S&P 500 SPDR) at fresh 3-Month High

Although probabilities and odds were tilt in favor of a higher close on Tuesday, October 5 (see my posting Positive Bias for Tuesday, October 5, 2010 ) – on top of those intermediate- and longer-term positive seasonalities and setups like being up year-to-date at the end of September ( see As September goes, so goes … ), special situations like the recent clustering in POMO days ( Permanent Open Market Operations (POMO) ), and the recent strength in the Market Vane Bullish Consensus – the magnitude of change took me by surprise (I closed my long position way too early).

The SPY (S&P 500 SPDR) not only closed out the day with a strong gain, the index closed at a fresh 3-month high as well, and finished the day almost at the (intraday) high.

But whenever the SPY closed at a fresh 3-month high and finished the day almost at the (intraday) high in the past, the SPDR was trading flat to down over the course of the then following 5 sessions, at least short-term consolidating the then recent gains. Table I below shows the last 75 occurrences and the SPY‘s historical performance (since 01/01/1990) over the course of the then following 1 , 2 , 3 , 4 and 5 sessions, assumed one went long on close of a session where the SPY closed at a fresh 3-month high and finished the day almost at the (intraday) high (in the top percentile of the intraday range) in the past.


(* no close below trigger day’s close during next 5 sessions)

Out of the last 75 occurrences, the SPY never gained more than +0.92% on the close of the then following session (in fact it posted a gain greater than +0.50% on only 3 out of the last 75 occurrences), closed at a higher level (+1.0% or more) 3 sessions later on only 5 out of the last 75 occurrences, and upside potential during the then following 5 sessions was regularly limited as well (with respect to the last 75 occurrences, the SPY was never trading better than +2.78% above the trigger day’s close over the course of the then following 5 sessions).

In addition, when the market finished the 3rd session of the month (at the same time the last session of the so-called turn-of-the-month window) with better than a +1.75% gain in the past, probabilities and odds are (significantly) tilt in favor of a lower close on the then following session (in this event on Wednesday, October 6). Table II below shows all 13 occurrences and the SPY‘s historical performance (since 01/01/1990) over the course of the then following 1 , 2 , 3 , 4 and 5 sessions, assumed one went long on close of a session where the SPY posted better than a +1.75% gain on close of the 3rd session of a month in the past.


(* no close below trigger day’s close during next 5 sessions)

Out of a total of 13 occurrences since 1990 (unfortunately a very small sample size only), the SPY closed lower the next day on 11 occurrences, and always closed at a lower level at least once over the course of the then following 5 sessions.

Conclusion:

The markets will probably take a breather over the short term, but at least from today’s point of view the positive intermediate- and longer-term outlook persists.

Successful trading,

Frank

Disclosure: No positions in the securities mentioned in this post at time of writing.

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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), 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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Comments (2)

 

  1. […] This post was mentioned on Twitter by Frank Hogelucht and Brokerz S&P 500 news, 50 Pips. 50 Pips said: RT @TradingTheOdds: New blog post: SPY (S&P 500 SPDR) at fresh 3-Month High URL: http://bit.ly/dsouM4 ($$ $SPX $ES_F $NDX $NQ_F) […]

  2. Marubozu says:

    My chart is also telling thet SPY should see a short term pull back but the long term uptrend channel is still intact.

    http://mystocksinvesting.com/us-stocks/snp500/key-us-market-indices-review-reversal-at-sight/

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