Studies - Posted on Tuesday, December 14, 2010, 10:39 PM GMT +1

4 Comments


Dec Tuesday 14

SPX: 6 Consecutive Higher Open and Closes

On Tuesday’s (December 14, 2010), the S&P 500 opened higher and closed higher 6 days in a row (in addition to the fact that the index posted its 9th higher close during the last 10 sessions, the 10th consecutive session with no intraday low less than -0.40%, and and and), which – from a historical and statistical perspective – will probably have bullish implications (what else !?) over the course of the next couple of sessions.

Table I below shows all (including successive) occurrences and the S&P 500′s historical performance (since 01/01/1930) over the course of the then following 1, 3 , 4 , 5 and 10 sessions (2 weeks later), assumed one went long on close of a session where the S&P 500 opened higher and closed higher 6 days in a row in the past (means long on close of the 6th session; and although the opening quotation for US major market indices is regularly a fake, for statistical analysis – as a trigger only (!) – it doesn’t matter, contrary to performance analysis utilizing the open, or for trading purposes like entry / exits).


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

It is interesting to note that

  • … the S&P 500 was trading at a higher level 3 sessions later on 31 out of the last 35 occurrences ;
  • … the S&P 500 was trading lower more than -1.0% on only 3, but higher more than +1.0% on 20 out of the last 62 occurrences ;
  • … the S&P 500 was trading at a higher level 10 sessions later on 26 out of the last 28 occurrences, and never lower more than -1.34% out of the last 62 occurrences.

Conclusions:

From a statistical and historical point of view, this might still (despite any ‘overbought‘ indications or indicators) not be the peak time to bet the farm on any short-term mean reversion tendency. With positive seasonalities (December, December’s option expiration week), recent bullish setups triggered and the market’s remarkable tendency to power ahead despite overbought conditions, probabilities and odds are still tilt in favor of a continuation of the recent run-up in the markets, and downside potential might be limited until the end of the year (subject to any force majeure).

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, Scott MacKenzie and 50 Pips, Quant Blogs. Quant Blogs said: Trading the Odds: SPX: 6 Consecutive Higher Open and Closes http://bit.ly/dGR9WM [...]

  2. Luis says:

    Great study as usual, thank you. What is the last column on the right though? Could you please define it? Thanks

    • TradingTheOdds says:

      Luis,

      thanks a lot.

      The column on the right (‘# session higher close’) represents the minimum number (if any) of sessions (during the period under review, in this event the then following 10 sessions) until the index posted a close above the trigger day’s close.

      Best,
      Frank

  3. [...] reaction is that it makes no sense and it needs to be faded.  Does that make me smart, or a rational but flawed human being?  We all know the reasons it HAS to pull back…high call buying, high bullish [...]

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