Daily Commentary - Posted on Friday, November 4, 2011, 11:34 AM GMT +1

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Nov Friday 4

SPX w/ Full Gap Up after FOMC

Tonight Rennie Yang from MarketTells presented a very interesting and telling study concerning the S&P futures tendency to close below the opening gap price either the same day or within the next couple of days in the event S&P futures opened with an upside gap on the day immediately following an FOMC announcement session (like on Thursday, November 3).

After my posting hiatus during the last couple of month it took a while to get the majority of my data up to date again, but finally I managed to check for historical probabilities and odds (over the course of the then following 1 to 5 sessions) in the event the SPY not only posted a full opening gap up (opening price is greater than the previous sessions’s high price) on the day immediately following an FOMC announcement session (as Rennie did), but closed aboved the previous sessions’s (the FOMC announcement session) high price as well (a subset of Rennie’s list of occurrences, and not focused on the opening gap price).

Historical probabilities and odds are tilt in favor of an at least temporary consolidation of the market’s gains over the last 2 days. Since 1990, the SPY closed at a lower level the next day (in this event on Friday, November 4) on 12, and three days later on 14 out of a total of 17 occurrences (thereof on 10 out of the last 11 occurrences). In addition, the SPY closed lower -1.0%+ three days later on seven, but up +1.0%+ on only one occurrences, with a negative median change concerning all of the then following five sessions.

Therefore any (intraday) upside follow-thorough on Friday’s session might provide a short-term shorting opportunity, targeting at least an S&P 500 close below 1261.15 until Tuesday, November 8.

But be careful, financial and political news from Greece, other european countries like Italy and Spain, and the G20 meeting in France may have a major impact on market movements (GLOBEX, intraday and close-to-close), and at the moment almost everything seems possible, even – with respect to historical probabilites and odds – an extraordinary (and unexpected) move like on Thursday, November 3 (see SPX Up > 1.50% on an FOMC Announcement Session), going from -1.5% on GLOBEX to +1.88% on the close.

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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