Daily Commentary - Posted on Monday, December 5, 2011, 11:34 PM GMT +1

2 Comments


Dec Monday 5

Short-term Extended to the Upside

Fully compliant to historical probabilities and odds (see my last posting: The Trend is Your Friend … ), major market indices resumed their uptrend after two fractionally lower closes at the end of the last week, the 6th consecutive session now with a higher open, a higher high and a higher low above the previous session’s open, high and low respectively.

But with an opening quotation not lower than -0.30% below the previous session’s high on the 6th consecutive session as well, the SPY (S&P 500 SPDR) appears a bit extended to the upside suggesting a near-term correction/consolidation ahead.

Table I below shows all occurrences (since 1990) and the SPY (S&P 500 SPDR) performance on the then following session (in this event on Tuesday, December 6) in the event the SPY did not open worse than -0.30% below (or above) the previous session’s high on six consecutive sessions in the past. The SPY was regularly trading in a tight range the next day, with only one out of twenty-six instances leading to an outside ±1.0% move, and a mean and median return close to zero. But on two out of every three occurrences, the short-term trend was down, and the SPY never gained more than +0.53% on the close .


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But there is some good news as well, even unexpectedly. Contrary to someone’s probable expectation, the market’s inability to close above the open, even on a back-to-back session in the midst of a strong uptrend, is not a sign of weakness and potentially lower prices ahead, quite the opposite.

Table II below shows all occurrences (since 1990) and the SPY‘s (S&P 500 SPDR) performance over the course of the then following four session (and until the end of the week, in this event until Friday, December 9) in the event the SPY posted a higher high and a higher lower on three (or more) consecutive sessions, but closed below the open (a black ‘candle‘) on the last two sessions.

The SPY does not only show a significantly positive bias and remained on firm path over the course of the next couple of sessions (posting a higher close two and three days later on 11 out of 14 occurrences), but did never loose 1.0%+ (two days w/ an exactly 1.0% loss) over the course of the then following four sessions on any of those occurrences listed below and/or over the remainder of the week (whatever came first), and posted at least one higher close one to three days later on all instances.


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Conclusion(s)

The trend remains up, but a short-term consolidation on Tuesday, December 6 seems likey, while downside potential will probably be limited.

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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Comments (2)

 

  1. […] the markets may be overbought for now.  (Trading the Odds, Global Macro […]

  2. william says:

    Can you update your results with thur and fri results to see if a trned for mon and tues?

    What affect did the quadruple witching have on the results?

    thanks
    interesting information!!

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