Daily Commentary - Posted on Tuesday, December 20, 2011, 10:43 PM GMT +1

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Dec Tuesday 20

Consolidation Day Ahead …

After a couple of negative price changes and/or lackluster performance days  (see Missing Progress on the Upside … ), the SPY (S&P 500 SPDR) hit the gain and surged higher +3.03% today.

With respect to the setup ”The SPY closed 0.50%+ below the open for a 5th straight day triggered on Friday, December 16, now the 6th out of 6 occurrences where the index closed higher 1.75%+ two sessions later, and the signal was triggered on the close of Monday, December 19 as well (will be a hit on the 7th occurrence as long as the SPY will not gave back a major part of today’s gains on tomorrow’s session). This signal (and indicator) will be subject to another posting, probably for tomorrow …


On Tuesday’s session, volume associated with advancing issues on the NYSE accounted for more than 95% of total NYSE volume, which historically had been indicative of a short-term consolidation ahead.

Table I below shows all occurrences (since 1990) and the SPY‘s (S&P 500 SPDR) performance over the course of the then following three sessions (in this event until Friday, December 23), followed by the next time the ETF posted a higher high (compared to the then previous session’s high, not compared to the trigger day’s high), and by the next time the ETF posted an up day (compared to the then previous session’s close).

Chances for a(nother) higher close on the the following sessions are mixed, but worth mentioning is the fact that there has never been a significantly follow-through on the next session (no 1.0%+ move on the upside, but five 1.0% moves on the downside). And even in the event the SPY posted a higher high or another positive close – regularly one or two sessions later -, the index closed higher 1.0%+ above the trigger day’s close on only one out of 22 occurrences, and – with respect to the latter – closed at a higher level on only two out of every three occurrences (despite a positive close).

Therefore chances for some significant upside follow-through on Wednesday are slim (the next session with a high higher or a higher close will probably not take us significantly above current levels), and any (significant) intraday follow-through on tomorrow’s session (or GLOBEX session) might provide a short-term selling opportunity.

But the good news: Three session later the SPY closed at a higher level on 16 out of 22 occurrences, thereof 10 occurrences with a 1.0%+ (cumulative) gain on the close.



Historical precedences suggest a short-term consolidation ahead, but backed by positive seasonalities and a couple of bullish setups triggered, I expect major market indices to remain firm over the remainder of the year

Have a profitable week,


Disclosure: No position in the securities mentioned in this post at time of writing.


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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(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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