Daily Commentary - Posted on Monday, November 7, 2011, 6:26 PM GMT +1

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Nov Monday 7

A Close at Today’s (Monday’s) Lows …

… would trigger a potential (and favorable) buying opportunity, and even any lower close today might trigger a buy targeting a higher close on Tuesday, November 8.

On Friday’s session the SPY (S&P 500 SPDR) closed in the top quartile of its daily trading range on the third consecutive session (to be exact: on Wednesday, November 2, it missed the top quartile only by a fraction, but not affecting respective probabilities and odds), in this event right at the start of the month (either the first three sessions of a month or the second to fourth session) providing a remarkable downside edge (see my posting SPY – Consecutive Closes in Top Quartile). At least at time of writing this bearish patterns plays out accordingly (S&P 500 down -0.90%).

Table I below shows now all historical occurrences and the SPY‘s performance over the course of the then following 1, 2, 3 and 5 sessions in the event the SPY closed in the top quartile of the daily trading range three days in a row (at any time during the month), immediately followed by a (weak) close in the lowest tenth of its daily trading range (as it might be the case on Monday’s session).

It is remarkable to note that whenever that setup had been triggered in the past (the most recent occurrence on 10/31/2011 is still ‘open’), the SPY never managed a 1.0%+ gain on the close of the then following session (in this event on Tuesday, November 8), but closed lower another -1.0%+ on six occurrences (for an at least limited upside potential). But: Three session later buyers had regularly gained the upper hand again, and the SPY closed at a higher level three and four session later on 3 out of every 4 occurrences – while 1.0%+ moves on the upside outnumbered 1.0%+ moves on the downside by a wide margin (8 : 2 and 11 : 2 respectively), and closed at a higher level ten sessions later on all but one occurrences (with 14 : 1 moves on the upside vs. downside).

The most recent occurrence – triggered on 10/31/2011 – is calling for a close at or above 125.50 (SPY) on today’s session (Monday, November 7) – but in contrast to those bearish setups triggered on Friday, November 4 – and/or on Tuesday, November 8, and for a close at or above 126.75 (≥ +1.0% move) a week from now (on Monday, November 14) – representing an +2.0% upmove from current levels -. Therefore a lower close today would trigger a buy setup – especially in the event of a close in the bottom tenth of today’s intraday trading range (setup being trigger again) -, calling for higher prices over the remainder of the week (signal triggered on 10/31/2011) and possibly (in the event of a close in the bottom tenth of today’s intraday trading range) over the course of the next ten sessions as well.

 

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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