Daily Commentary - Posted on Monday, November 14, 2011, 11:52 PM GMT +1

1 Comment


Nov Monday 14

Down on Veterans Day (Gap Fill)

Filling Friday’s full gap up (the SPY posted an intraday low of 124.92, a fraction below last Thursday’s intraday high of 124.94) seemed to have a higher appeal on Monday, November 14 than going for taking out the most recent multi-month high, at least for the present.

The SPY (S&P 500 SPDR) closed lower -0.95%, -0.58% below the open, and posted an intraday high of 126.36, well below the close on Friday, November 11 (Veterans Day), and therefore defied historical probabilities and odds calling for a positive tendency during the regular session. But with major market indices closing lower on the session immediately following Veterans Day, historical probabilities and odds (seasonality) are significantly tilt in favor of higher prices over the remainder of the week.

Table I below shows all historical occurrences and the SPY‘s performance over the course of the then following 5 sessions in the event the SPY closed lower on a session immediately following Veterans Day in the past.

 

With major market indices closing lower on a session immediately following Veterans Day in the past, the SPY closed at a higher level two, three and five day later on 9 out of 11, and 4 days later (in this event on Friday, November 18, at the same time option expiration) on 10 out of 11 occurrences, thereof up ≥ 1.0% on 9 occurrences, while never closing lower ≤ -0.20%.

Additionally, for a second day in a row (below Friday’s already-low level), volume in SPY came in at a 3-month low, immediately following a session where the index had closed with a full gap up (intraday low above the previous session’s high). Table II below shows all historical occurrences and the SPY‘s performance over the course of the then following 5 sessions in the event the SPY closed lower on the lowest volume of the last 10-days (low-volume pullback), immediately following a session where the index had closed with a full gap up in the past.

When that setup listed above had been triggered in the past, the SPY had closed at a higher level one, two, three, and four days later on three out of every four occurrences, or 75% of the time, with 1.0% changes on the upside significantly exceeding -1.0% changes on the downside.

Conclusion(s): History (Veterans Day seasonalities and low-volume pullback) suggests that there is a good chance that the markets might not only bounce back from today’s lower close, but start another attempt to penetrate the recent multi-month high over the course of the remainder of the week.

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 (1)

 

  1. deacon says:

    17 gaps and what do you get? A case for a major market low
    http://www.sentimentrader.com/comments/20111115_gaps.htm

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