Daily Commentary - Posted on Tuesday, October 19, 2010, 11:42 PM GMT +1

4 Comments


Oct Tuesday 19

The ‘Heart of Gold’ Went Back into Reverse

On Tuesday, October 19, the  Heart of Gold (from Douglas Adam’s ‘The Hitchhiker’s Guide To The Galaxy‘ novels) – in this event represented by the S&P 500 – went back into reverse after being power ahead by its famous Infinite Improbability Drive last Friday when NYSE TICK data and market internals were heavily lopsided in favor of a (significantly) lower close, but the S&P 500 defied all probabilities and odds and closed up. But expectedly (see my posting The Infinite Improbability Drive ) sellers showed up again early this week, and down -1.31% on the day the SPY (S&P 500 SPDR) posted its (supposed) close below last Friday’s close. 

And it is again the (significantly lopsided) negative NYSE TICK data which caught my eye today (a TICK is the number of NYSE stocks traded on an uptick vs. (minus) stocks traded on a downtick ; extreme TICK readings (e.g. < -1,000 and/or > +1,000) often indicate the presence of institutional buy or sell programs or heavy short covering on extreme positive readings), especially due to the fact that the same setup (heavily lopsided negative NYSE TICK data) as of last Friday was triggered today again.

Table I below shows NYSE TICK statistics for the session on Tuesday, October 19, 2010, divided into the total number of 1-minute lows below -1,000 , -750 , -500 and 1-minute highs above +1,000, +750, +500, during the first hour, during the main session (from the end of the first hour until the start of the last hour) and during the last hour of the session.

xx

NYSE TICK # 1-min Lows # 1-min Highs
Time of Day -1,000 – 750 – 500 ≥ +1,000 ≥ + 750 ≥ + 500
First Hour 1 4 1 1 3 8
Main Session 24 49 93 1 1 39
Last Hour 11 25 32 2 5 14

xx

You might notice at first glance that the total number of 1-minute lows (again) always exceeded (or at least equals) the respective total number of 1-minute highs during every part of the session (first hour, main part and last hour), e.g. 24 1-minute lows below -1,000 vs 1 1-minute highs during the main session, and there was only one 1-minute high above +750 during the main part of the session (in contrast to 49 1-minute lows below -750, and 24 1-minute lows below -1,000, reflecting heavy selling pressure). This was therefore the 2nd occurrence (with last Friday being the first one) within a 3-day time frame where the total number of NYSE TICK 1-minute lows always exceeded the respective total number of 1-minute highs during every part of the session (first hour, main part and last hour).

Table I below shows those occurrences and the SPY‘s historical performance 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 total number of 1-minute lows always exceeded the respective total number of 1-minute highs during every part of the session (first hour, main part and last hour) for the 2nd time within a 3-day time frame (setup triggered on day 1 and day 3 of the time frame), and the SPY closed lower at least -1.25% on the 2nd occurrence in the past.

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

Especially noteworthy are the following pattern:

  • the SPY closed higher the next sessions on 15 out of those up to now 20 occurrences (or 75% of the time),
  • the SPY closed on a higher level at least once over the course of the then following 5 sessions on 18 out of 20 occurrences, and regularly (on 17 occurrences) already 1 or 2 sessions later (or 85% of the time),
  • on 9 out of those 20 occurrences, the SPY‘s next session’s returns were ranked in the top percentile of the respective at-any-time returns (among the top 10% of the benchmark’s at-any-time returns),
  • the SPY never looked back and did not post a close below the trigger day’s close over the course of the then following 5 session on 7 out of 20 occurrences (or 35% of the time), and finally
  • we’ll probably experience some extended volatility during the next couple of sessions. The SPY was trading higher/lower at least +/ 4.00% (or more) 3 sessions later on 10 out of those 20 occurrences (or 50% of the time).

Successful trading,

Frank

Disclosure: No position 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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Disclaimer

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.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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Comments (4)

 

  1. […] This post was mentioned on Twitter by Frank Hogelucht and ukarlewitz, 50 Pips. 50 Pips said: RT @TradingTheOdds: New blog post: The 'Heart of Gold' Went Back into Reverse URL: http://bit.ly/9pVj9K ($$ $SPX $ES_F $NDX $NQ_F) […]

  2. […] Read more here: The ‘Heart of Gold’ Went Back into Reverse […]

  3. Lulzasaur says:

    Hi Frank,

    I find your posts incredibly informative and interesting. I like your methods, and had a couple questions. In your prior post on the Infinite Probability Drive, your table goes back to 2008, and the description states data-mining back as far as 2000 (“Out of 132 occurrences since 2000, the SPY closed…”) I could not help but wonder if the relationships you are postulating are more or less valid (or statistically significant) in certain types of markets (for example, the way the market is behaving today could be different than the way it was behaving in 2000). I was wondering what the data would say if you included datasets from SPY’s inception (01/29/93) or, even better, since the inception of the S&P500 (1957). Thoughts?

    • TradingTheOdds says:

      Lulzasaur,

      thanks a lot for your kind words.

      The table goes back to 2008 because all 132 occurrences do not fit into the page, therefore (as mentioned) I showed the last 79 occurrences only. Unfortunatley my intraday TICK data goes back to June 1999 only, so I can’t check for those occurrences before June 1999.

      I always show (or at least always try to do so) ‘unbiased’ stats, means I do not make any assumptions about deviations in the then current market behaviour (e.g. a close above/below the 200-day moving average, or the 50-day exponential moving average above/below the 200-day moving average, …) , which is – from my perspective – some form of data-snooping (narrow the data used to reduce the probability of the sample refuting a specific hypothesis).

      I fully aggree that the longer the history the better, but in this event my data goes back to 1999 only.

      Best,
      Frank

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