Daily Commentary - Posted on Thursday, November 25, 2010, 2:20 PM GMT +1

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Nov Thursday 25

Unfilled Gap prior to (Exchange) Holiday

On Wednesday, November 24, the SPY not only recouped all of Tuesday’s (heavy) losses (-1.45% on Tuesday, +1.48% on Wednesday), but left an unfilled gap on the upside (an intraday low above the previous session’s high) as well.

Although historically the session immediately following the Thanksgiving exchange holiday shows a positive bias (regularly due to the absence of institutional and commercial traders and a lack of potential selling pressure), an unfilled gap up on a session immediately preceding a holiday historically didn’t bode well for the market’s short term (next session’s) performance.

Table I below shows those occurrences (including currently valid exchange holidays and – historically then in force – exchange holidays like Columbus Day, Veterans Day and/or Election Day in order to increase the sample size) and the SPY‘s historical intraday performance (since 01/01/1990) on the open (‘open vs. prev. close‘), the intraday high (‘high vs. previous close‘), the intraday low (‘low vs. previous close‘), at the end of the first hour (‘1st hr. vs. prev. close‘), and on the close (‘close vs. prev. close‘) on those sessions where the SPY left an unfilled gap up on a session immediately preceding a holiday (exchange and non-exchange) in the past (like on Wednesday, November 24).

Although the number of occurrences is limited, it is at least interesting to note that with respect to the session immediately following the holiday – like on Friday, November 26 – , the SPY

  • … never managed a gain greater than +0.46% on the open;
  • … managed an intraday high greater than +0.50% on only 3 out of 16 occurrences (and an intraday gain gt. +1.0% only once, significantly lower than the at-any-time probabilities and odds concerning the intraday high), but posted an intraday low at least -0.50% below the previous session’s close on 12 occurrences (and an intraday loss gt. -1.0% on 7 occurrences);
  • … was never trading higher than +0.48% at the end of the first hour of the session (but lower on 11 occurrences); and finally
  • … closed lower on 11 out of up to now 16 occurrences (or 68.75% of the time).

Conclusions:

From a statistical and historical point of view, on Friday’s session a positive seasonality will collide with a negative short-term setup. The positive seasonality might soften otherwise negative probabilities and odds, so both up- and downside potential will probably be limited for an unspectacular session (subject to any force majeure). A (significantly) higher open would probably provide an intraday shorting opportunity targeting lower prices at the end of the first hour of the sessions and /or into the close.

Happy Thanksgiving,

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 (1)

 

  1. […] This post was mentioned on Twitter by Frank Hogelucht, Quant Blogs. Quant Blogs said: Trading the Odds: Unfilled Gap prior to (Exchange) Holiday http://bit.ly/fcweZ3 […]

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