Daily Commentary - Posted on Tuesday, November 8, 2011, 9:25 AM GMT +1

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Nov Tuesday 8

SPX Higher on Low(est) Volume

Although on Monday, November 7, the S&P 500 defied all probabilities and odds (see SPY – Consecutive Closes in Top Quartile) and closed higher +0.63% on the day, the market provided plenty of opportunity on GLOBEX (ES E-mini S&P 500 futures down -1.35% overnight) and during the regular session (-1.02% intraday) to close a potential short opened on the close of then end of last week or early during Sunday’s GLOBEX session (see my respective Twitter updates).

On Monday the SPY (S&P 500 SPDR) posted a higher low and a close above the open, closed in the top quartile of its daily intraday range and at least +1.50% above the previous session’s low, all on the fourth consecutive session, but on anemic volume. Less than 200 mio. shares in the SPY SPDR. changed hands, a three month low) which – from a historical perspective – is short-term negative.

Table I below shows all historical occurrences and the SPY‘s performance over the course of the then following 1 to 5 sessions in the event the SPY closed at least +0.25% above the previous session’s high, and volume in SPY SPDR came in at a 3-month low.

Out of 14 occurrences (a rather rare occurrence), the SPY managed a 1.0%+ gain on the close over the course of the then following five sessions on only 1 occurrence (10/12/2009), but closed lower -1.0%+ three days later on 9 occurrences. In addition, the SPY closed at a lower level at least once over the course of the then following four sessions (in this event until Friday, November 11) on all but one occurrence (01/25/1995), thereof the last 13.

Table II below now shows all historical occurrences and the SPY‘s performance over the course of the then following 1 to 5 sessions in the event the SPY closed at least +1.75% above the previous session’s low, and volume in SPY SPDR came in at a 3-month low.

Out of 11 occurrences, the SPY closed at a lower level 2 days later on 10 occurrences (vs. a random chance of 58.30% for a lower close one or two days later), and 5 sessions later (in this event on Monday, November 14) still on 9 occurrences, while 1.0%+ moves on the downside outnumbered 1.0%+ moves on the upside three and five days later by a wide margin of 8 : 1.

Conclusion(s): With those negative setups triggered at the end of last week still in play (see SPY – Consecutive Closes in Top Quartile and SPX 1st Week-To-Date in November), and most recent ‘recovery days’ (a close at the top of the daily intraday range) not supported by adequate volume (quite the opposite), history suggests at least a short-term consolidation and at least one lower close over the remainder of the week.

But cautiousness will probably be rewarded. During the last couple of days the market has already shown that buyers are eager to buy any intraday dip (even during time of writing ES E-mini futures have recouped an -0.50% intraday dip in a couple of minutes), so don’t overstay your welcome on the short side of the market.

 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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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.

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(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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