Daily Commentary - Posted on Saturday, December 17, 2011, 11:29 PM GMT +1

4 Comments


Dec Saturday 17

Missing Progress on the Upside …

Although the SPY‘s (S&P 500 SPDR) fully complied to historical probabilities and odds suggesting a higher close one and two sessions later (in this event on Thursday and Friday last week) in the event volume in declining issues on the NYSE outnumbered volume in advancing issues by a 3 : 1 ratio on three consecutive sessions in the past (see 75%+ Declining Volume 3 Days in a Row), the market showed a lackluster performance on both days (again).

For a couple of consecutive sessions now, Wall Street could not hold onto its intraday gains, regularly slipping lower in afternoon trading. On Friday, December 17, the SPY

  1. closed 0.50%+ (or more) below the open on the fifth consecutive session (5 occurrences since 1990);
  2. closed in the bottom two percentiles of its intraday range (high – low) for a fourth straight day (3 occurrences since 1990);
  3. closed below the previous session’s high for a twelfth straight day (since Nov. 30, 2011); and
  4. the latter for the first 12 sessions of the month (the 2nd occurrence since 1990, 1st on 07/19/2004).

Historically, such persistent selling pressure into the close had provided a favorable buying opportunity in the past.

Table I below shows all occurrences (since 1990) and the SPY‘s (S&P 500 SPDR) performance over the course of the then following 2 sessions (in this event until Tuesday, December 20), until the end of the week (in this event on Friday, December 23), at the end of the then following week (in this event on Friday, December 30) and one month later in the event the SPY had closed 0.50%+ (or more) below the open on the fifth consecutive session in the past (a rare occurrence).

Although five occurrences only is nothing to read anything statistically significant into it, results are quite remarkable (on the upside). The SPY closed at a lower level on the then following session (in this event on Monday, December 19) only once, that’s it. The index was trading at a higher level one day later on all other occurrences, and did never close below the trigger day’s close from the then following day onward (‘2 sessions later’) over the course of the then following month (and more) on any of those occurrences listed below (the SPY surged higher 10.0%+ over the next month on the last three occurrences, the last time in October this year, and was up 1.0%+ from the 2nd day onward at any of those points in time listed below).

__________________

But what about closing near the intraday low for a fourth straight day ? In order to increase the sample size, I lowered the bottom two percentile threshold to the lowest quartile. Table II below shows all occurrences (since 1990) and the SPY‘s performance on the then following session (in this event on Monday, December 19), four and five sessions later, until the end of the then following week (in this event on Friday, December 30) and until the end of the respective month in the event the SPY closed in the lowest quartile of its daily intraday range (high – low) four (or more) days in a row.

The SPY closed at a higher level on the then following session on 9 out of 11 occurrences, and closed at a higher level four days later on 10 out of 11 occurrences, always posting at least one higher close above the trigger day’s close over the course of the then following four sessions on all 11 previous occurrences. The SPY closed at a higher level five sessions later and by the end of the then following week on 9 out of those 11 occurrences, and never lower 1.0%+ but up 1.0%+ on 7 and 8 occurrences respectively.

__________________

But cautiousness might be warranted before betting the farm on a (delayed) Santa Claus Rally: On Friday, December 16, the CBOE Equity Put/Call Ratio closed above the 0.90 threshold for a second day in a row, which historically had negative implications on the then following session (only): The SPY closed lower the next day on 16 out of 23 occurrences (since 1990), thereof lower 1.0%+ on 12 occurrences. But due to the fact that the CBOE Equity Put/Call Ratio has been jumping back and forth this week, closing at the lower end of this week’s range right at the start of the week when the SPY had plumpeted, but surging higher on Thursday and Friday when the SPY closed up, I’am a bit suspicious of giving it too much weight.

__________________

Conclusion(s)

Even by leaving out any kind of (positive) seasonality again, such persistent selling pressure regularly during the second part of the day on several consecutive sessions had bullish implications in the past.

Have a profitable week,

Frank

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.

________________________________

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)

________________________________

Comments (4)

 

  1. RM says:

    Frank, thanks. Why can’t you run these numbers back to the 1930’s? Regards,

    • TradingTheOdds says:

      RM,

      opening quotations on major market indices are almost always a fake (in comparison to the respective tradable ETF), and more often than not there is a significant (percentage-wise) deviation between a major market index’ intraday high / low and it’s respective ETF’s high /low.

      Therefore I don’t like to use the SPX’s data going all the way back to 1930.

      Best,
      Frank

  2. John says:

    Maybe buy on the close and sell at the open.

    Merry Christmas

    John

Leave a Reply

Your email address will not be published. Required fields are marked *