Daily Commentary - Posted on Tuesday, December 28, 2010, 12:26 PM GMT +1

2 Comments


Dec Tuesday 28

7 Consecutive Closes in the Upper Half of the Daily Trading Range

With Monday’s (December 27, 2010) session, the SPY (S&P 500 SPDR) closed in the upper half of the daily trading range (above the midpoint) now seven days in a row, regularly (historically) a sign that buying power might be exhausted for the very short-term, and short-term mean reversion tendency kicks in.

Table I below shows all occurrences and the SPY (S&P 500 SPDR)′s historical performance (since 01/01/1990) over the course of the then following 1, 2, 3 and 4 sessions (and the minimum number of sessions – if any – until the index posted a first higher and a first lower close above / below the trigger day’s close), assumed one went long on close of a session where the SPY (S&P 500 SPDR) closed in the upper half of the daily trading range seven days in a row for the first time (setup was not triggered on an eighth consecutive close in the upper half of the daily trading range).


(* no close below trigger day’s close during period under review)

When the setup listed above had been triggered in the past, the SPY (S&P 500 SPDR)

  • … closed higher +0.50% or better on the then following session on only 3 , but lower -0.50% or worse on 10 out of 32 occurrences ;
  • … closed higher +1.00% or better 2 sessions later on only 1 , but lower -1.00% or worse on 8 out of 32 occurrences ;
  • … closed at a lower level 2 sessions later on 23 out of 32 occurrences (or 71.87% of the time) ;
  • … closed at a lower level at least once over the course of the then following 3 sessions on 27 out of 32 occurrences (or 84.37% of the time) ; and
  • … never looked back and did not post a single close above the trigger day’s close during the then following 5 sessions on 10 occurrences, but posted no lower close on 4 occurrences only.

Conclusions:

But what historically (and otherwise) would’ve provided a favorable short-term selling (shorting) opportunity (when mean-reversion worked perfectly well, which is currently not the case), might be a bit different this time around. With Monday’s session, the SPY (S&P 500 SPDR)’s daily change (on the close) ranged between -0.65% and +0.65% on the 16th consecutive session now. Since 1990 this has happened on 16 other occurrences, but the SPY (S&P 500 SPDR) posted an (relatively) ‘outside‘ move (≥ abs(0.65%)) on the then following session (day 17) on only 3 , but extended the then current streak on 14 occurrences. And due to the current absence of institutional and commercial traders (volume is at its lowest level of the year) and a lack of potential selling pressure (the market seems to be driven by small traders and speculative interest), but positive seasonalities, a continuation of the current low volatility environment on the close seems more than probable (with a slightly positive bias).

P.s.:

In order to make forecasts and/or predictions (based on historical probabilities and odds, and how specific pattern in the markets played out in the past) being part of my postings somewhat quantifiable, historical (closed) and currently open (differentiated by short-term and intermediate-/long-term) forecasts and/or predictions with their trigger dates, link to the posting, the respective signal(s)/prediction(s), the closing date, the final result, and if the forecast/prediction was a hit or a miss (but regularly no degree of performance like the percentagewise P&L – this does not represent a trading system) can be found here (see ‘TRACK RECORD‘ on the navigation strip).

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 explicitly 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 (2)

 

  1. […] This post was mentioned on Twitter by Frank Hogelucht. Frank Hogelucht said: New blog post: 7 Consecutive Closes in the Upper Half of the Daily Trading Range URL: http://bit.ly/ev1gXh ($$ $SPX $ES_F $NDX $NQ_F) […]

  2. Joshua says:

    It is also interesting to note that Gann would tighten up his stop after a seven day run on price, since that last technical spot for a stop was removed and the market was overbought.

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