Daily Commentary - Posted on Monday, February 7, 2011, 7:29 PM GMT +1

1 Comment


Feb Monday 7

SPY UP > 2.5% MtD on Day 1 of Week 2

At time of writing (2:30 PM), the SPY (S&P 500 SPDR) is currently up +0.79% on the day, and up +2.71% month-to-date on the first session of the second week of the current month.

But even taking into account that mean-reversion came a bit out-of-favor since the bull-run started a couple of month ago, historically probabilities and odds were heavily tilt in favor of some short-term mean reversion and consolidation of the then recent gains during the first couple of sessions of a month.

Table I below shows the SPY‘s performance over the course of the then following four sessions (regularly the remainder of the week) in the event the SPY closed up > +2.5% month-to-date on the first sessions of the second week of the current month.

The market’s chances for a higher close one to four sessions later were always (for every single session) at or around 37% (almost 1 : 2), significantly lower than the SPY‘s at-any-time chances for a higher close one to four sessions later (52.71% | 53.89% | 55.08% | 55.41%). But more eye-catching are the respective gains / losses. The SPY closed higher 1.0%+ two sessions later on only 2 , but lower -1.0%+ on 20 (!) out of 48 occurrences. The median change over the course of the then following four sessions is always negative, with day three leading the pack (-0.65%).

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Conclusions:

Probabilities and odds are (party heavily) tilt in favor of some consolidation of recent gains during the remainder of the current week, but don’t overstay your welcome on the short side of the market (the market may position it selves again for a resumption of the uptrend).

And a short reminder: If the information provided is helpful for your own trading business, any donation to my Be it! Children’s Charitable Foundation is much appreciated (donations can be sent via PayPal, see widget on the right side of the blog).

Successful trading,

Frank

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If the information provided is helpful for your own trading business, any donation to my Be it! Children’s Charitable Foundation is much appreciated (donations can be sent via PayPal).

Sincere thanks are given to all of you.

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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 (1)

 

  1. […] This post was mentioned on Twitter by Frank Hogelucht, wsthomas23, Greg Phatts, tapesense, Quant Blogs and others. Quant Blogs said: Trading the Odds: SPY UP > 2.5% MtD on Day 1 of Week 2 http://bit.ly/gYwQgq […]

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