Daily Commentary - Posted on Wednesday, November 30, 2011, 11:28 PM GMT +1

1 Comment


Nov Wednesday 30

What next ?

The SPY closed out November 2011 on a strong note, posting its biggest gain of the trailing quarter, up 4.11% on the close.

My expectation for Thursday, December 1 is mixed, mainly due to the fact that (at least) two setups were triggered today, unfortunately – concerning their forecast for Thursday’s outcome – almost as different as day and night.

There have been thirty occurrences since 1990 of the SPY closing higher 4.0%+. Twenty (or 66.67%) led to an immediate lower close the next day, thereof thirteen occurrences with a 1.0%+ loss versus two occurrences only with a 1.0%+ gain. In addition, 36.67% (one out of every three) of all occurrences fell into the bottom ten percent of the then current worst index returns, a disproportionately high number indicating that major market indices might give back at least some of Wednesday’s extraordinary gains on tomorrow’s session (profit factor of 0.32, and a t-score of -2.18).

On the opposite site: There have been twenty occurrences since 1990 of the SPY posting the biggest gain of the trailing quarter, when at the same time the 2-day RSI (Wilder’s Relative Strength Index) closed above 95 in regularly overbought territory. Contrary to someone’s probable expectation, fifteen (or 75%) led to an immediate higher close the next day, not loosing -0.60%+ on any occurrence, indicating that there might be some upside follow-through on tomorrow’s session (profit factor of 4.91, and a t-score of +1.97). But upside potential on tomorrow’s close will probably be limited: Out of those twenty occurrences, the SPY gained 1.0%+ on the close only once.


Conclusion(s): If in doubt (and no significant edge is provided), stay out (on the sidelines for tomorrow’s session), and a likely scenario on Thursday’s session might be an index trading (significantly) lower at least at some time during Thursday’s session, but closing near unchanged levels (just my 2 cent).

Have a profitable week,

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). Index data (e.g. S&P 500 cash index) does not account for dividend and cash payments.

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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 Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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