(ES E-Mini S&P 500) Futures are currently down -0.75% at time of writing (01/12/2010 09:11 AM) forecasting a potential (probably) lower close today (Tuesday).

But although a lower close today seemed likely (after a streak of higher closes, a series of higher highs and higher lows and the market’s ability to shrug off early weakness posting a higher close), any significant weakness today might provide a short-term buying opportunity.

Table I below shows the SPY‘ historical performance (since 01/01/1990) over the course of the then following 1 to 5 sessions when the SPY‘s 2-day RSI closed above 96 (a so-called ‘overbought‘ market indicating that it’s becoming increasingly difficult to find the ‘greater fool’ willing to buy your shares for an even higher price) and Wilder’s 2-day DX (Directional Movement Index, not to be mistaken for the Average Directional Movement Index (ADX)) closed above 95 (on the same session) indicating a strong underlying uptrend.

Interesting to note that upside potential on the then following session (today) was regularly limited (max. gain +0.51% the next day despite the run-up in the markets), but at least during 2009 the index always posted a higher close (than the trigger day’s close, in this event Monday’s close) 4 and 5 sessions later (but regularly already 3 sessions later) providing a short-term buying opportunity. So the timeframe between Friday this week and Monday next week might indicate if the recent run-up in the markets might persist for the time being …

Successful trading,
Frank

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

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.

Tuesday’s session raises the question if a pullback or a follow-through (of the previous session’s strength) immediately following a strong up-day (like on Monday, September 28) would be a positive or negative indication for the then following session (in this event Wednesday, September 30).

I therefore checked for those occurrences where

• Setup S11: the ES E-MINI S&P 500 left an unfilled opening gap on the upside (like on Monday, September 28) and closed lower the next session (today ?),
• Setup S12: the ES E-MINI S&P 500 left an unfilled opening gap on the upside (like on Monday, September 28) and closed higher the next session (today ?),
• Setup S13: market internals (breadth) were heavily lopsided on the upside (at least 90% of S&P 500 stocks closed higher, like on Monday, September 28), and the ES E-MINI S&P 500 closed lower the next session (today ?),
• Setup S14: market internals (breadth) were heavily lopsided on the upside (at least 90% of S&P 500 stocks closed higher, like on Monday, September 28), and the ES E-MINI S&P 500 closed higher the next session (today ?),
• Setup S15: the ES E-MINI S&P 500 closed up at least +1.75% (like on Monday, September 28) and lower on the then following session (today ?),
• Setup S16: the ES E-MINI S&P 500 closed up at least +1.75% (like on Monday, September 28) and higher on the then following session as well (today ?),

Table I shows the ES (E-MINI S&P 500) performance (since 01/01/1990) on the next session (in this event Wednesday, September 30) immediately following those sessions where setups S11 to S16 listed above had been triggered in the past.

It is especially remarkable that with a lower close on the session immediately following a strong up-day (setups S11, S13 and S15),

• the probability for a higher close on the then following session (in this event Wednesday, September 30) – partly significantly – exceeds the respective probability for a higher close in the event of another higher close immediately following a strong up-day,
• the odds (profit factor, average trade, t-score) on the then following session (in this event Wednesday, September 30) significanty undercut the respective odds in the event of another higher close, and finally
• with respect to setup S11 and S15, the respective t-scores signifcantly exceed the necessary -1.645 mark for statistical significance on the downside, means there is a low probability that those negative returns occurred by chance only.

Picture 1 shows distribution of the ES E-MINI S&P 500′ performance (gains and losses, close compared to the previous session’s close) on the then following session (in this event Wednesday, September 30) where any of setups S12, S14, S16 (another higher close immediately a strong up-day) listed above had been triggered on close of the previous trading day (overall bias). Although more data points (percentage performance numbers) fall to the left of the middle (negative closes), there are more exceptionally large than exceptionally small values (above +2.0%).

Picture 2 shows distribution of the ES E-MINI S&P 500′ performance (gains and losses, close compared to the previous session’s close) on the then following session (in this eventWednesday, September 30) where any of setups S11, S13, S15 (a lower close immediately a strong up-day) listed above had been triggered on close of the previous trading day (overall bias). Although more data points (percentage performance numbers) fall to the right of the middle (positive closes), there are more exceptionally small than exceptionally large values (below -2.0%).

Bottom line: In the event of a lower close today (Tuesday’s session), by going long on today’s close there is a slightly better than random chance that you’ll be ‘right’ on Wednesday’s close (but you’d be losing money in the long run), but if your primary goal is to make money in the markets, a higher close today would be the preferred outcome with respect to Wednedays’s close even if this would lower your probability of being ‘right’.

Successful trading,
Frank

P.s.: I’ll regularly make some intraday updates as well using Twitter. If you’re interested in, please have a look at the blog during the trading session as well (Twitter updates are shown on the upper right section of the blog) or subscribe directly to Twitter (recommended).

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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. Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security. No position in the securities mentioned in this post at time of writing.

This is a follow-up on my posting Trading the Odds on Thursday – August 13, 2009.

Due to the fact that ES (E-MINI S&P 500) futures are already up +1.0% at time of writing (05:50am CET), a favorable opportunity on the short side of the market may be provided on today’s open.

Table I shows the ES (E-MINI S&P 500) intraday performance (since 01/02/1990) concerning the open, close, close versus open, the first hour of the session and the last hour of the session on those sessions (in this event Thursday, August 13) where the ES (E-MINI S&P 500) opened up more than +0.75% on a session immediately following an FOMC announcement day (like yesterday).

With respect to intraday stats (open/close/close vs. open/first hour/last hour/) on those 10 out of 155 occurrences (regular FOMC meetings since 01/02/1990), it is especially remarkable that the ES (E-MINI S&P 500) never posted a gain of more than +0.11% at the end of the first hour of the session compared to the open (deduced from the Dow Jones Industrial’s performance during the first hour of the session), and posted a loss on the last 7 occurrences (at the end of the first hour of the session in comparison to the open). The t-score (-2.36 compared to the at-any-time performance during the first hour of a session) significantly exceeds the -1.645 mark in order to achieve statistical significance, despite the small sample size.

Odds are even better (concerning the probability of a winning trade if short on the open, the profit factor and t-score) and heavily lopsided in favor of a bearish bias concerning the ES’ (E-MINI S&P 500) performance after the 1st hour of the session in comparison to the opening quotation in the event the ES (E-MINI S&P 500) opens up more than +0.50% only instead of more than +0.75% on today’s session (1007+), stats below …

So in the event the ES (E-MINI S&P 500) opens up more than +0.50% on today’s session (1007+), from a historical and statistical perspective the open would provide a (highly) favorable shorting opportunity with respect to the first hour of today’s session (concerning today’s  close probabilities and odds would then be significantly tilt in favor of a higher close -on 9 out of 10 occurrences-, but not necessarily a close above the open).

Successful trading,

Frank

P.s.: I’ll regularly make some intraday updates as well using Twitter. If you’re interested in, please have a look at the blog during the trading session as well or subscribe directly to Twitter (recommended).

Disclaimer: Short ES (E-MINI S&P 500) at time of writing.

With the ES (E-MINI S&P 500) currently trading at 923.50 (up +8, +0.90%) at time of writing (06:30 AM CET), I thought it would be interesting to check if the pre-opening strength in the ES (E-MINI S&P 500) might provide a favorable trading opportunity (probably on the short side of the market), building upon those setups which were triggered on Tuesday’s close (see my posting Trading the Odds on Wednesday – July 1, 2009).

Table I below shows the ES’ (E-MINI S&P 500) intraday performance (since 01/02/1990) concerning the open, high, low, close (compared to the previous’s session close) and close versus open on those sessions (in this event Wednesday, July 1) immediately following those 175 sessions where the following setup had been triggered: ‘the ES (E-MINI S&P 500) posted an outside bar on a session where the ES (E-MINI S&P 500) closed lower at least -0.50% on the day‘ . (outside bar = Tuesday’s session completely engulfs Monday’s session, means Tuesday’s high is greater than the previous session’s high, and Tuesday’s low is lower than the previous session’s low)

Concerning setup’s S3 (‘the ES (E-MINI S&P 500) posted an outside bar on a session where the ES (E-MINI S&P 500) closed lower at least -0.50% on the day‘ ) intraday stats on the then following session it is especially remarkable that the ES (S&P 500 E-MINI) managed to leave an unfilled opening up gap greater than +0.80% (intraday low at least +0.80% above the previous session’s close) on only 3 out of 175 occurrences even in the event it had opened significantly higher.

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Bottom line:

With respect to Wednesday’s session and based on the respective probabilities and odds concerning those setups which were triggered on Tuesday’s close, the outlook concerning the ES’ (E-MINI S&P 500) performance is not only slightly negative, but the pre-opening strength in the ES (S&P 500 E-MINI) might provide a favorable shorting opportunity already before the open.

Successful trading,

Frank

P.s.: I’ll regularly make some intraday updates as well using Twitter. If you’re interested in, please have a look at the blog during the trading session as well or subscribe directly to Twitter (recommended).

Disclaimer: Short ES (E-MINI S&P 500) at time of writing.

I posted several tweets during today’s session concerning the ES (E-MINI S&P 500) probability and odds for a close below the open on today’s (Monday’s) session.

Before I checked -as always from a historical and statistical perspective- for the market’s performance on those session(s) after the setups listed below had been triggered in the past:

• the ES (E-MINI S&P 500) opened higher at least +0.40% (Setup S1),
• the ES (E-MINI S&P 500) opened higher at least +0.40% AND the opening up gap was filled during the session (Setup S2),
• the ES (E-MINI S&P 500) opened higher at least +0.40% AND above the previous session’s high (Setup S3), and
• the ES (E-MINI S&P 500) opened higher at least +0.40% AND above the previous session’s high AND the opening up gap was filled during the session (Setup S4).

On today’s session setup S2 had been triggered during the session (the ES did not open above Friday’s high).

Table I shows the ES (E-MINI S&P 500) end-of-day performance (since 01/02/1990) on those sessions (in this event Monday, June 29) where setups S1 to S4 listed above had been triggered in the past:

Is is especially notable that any gap fill during the session -like today- significantly reduces probability and odds (profit factor) concerning a positive close and a close above the open.

Table II shows the ES (E-MINI S&P 500) intraday performance (since 01/02/1990) concerning the open, high, low, close (compared to the previous’s session close) and close versus open on those sessions (in this event Monday, June 29) where setups S1 to S4 listed above had been triggered in the past:

It is especially notable that on those session where the opening up gap had been filled during the session -like today- the ES (E-MINI S&P 500) shows a significant tendency for a close below the open (on 264 out of 355 sessions), and the profit factor significantly undercuts the respective at-any-time profit factor (0.24 compared to 1.05).

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Bottom line:

With respect to Monday’s close compared to the open, this setup would call (with a historical probability of approximately 75%) for an ES (E-MINI S&P 500)’ close below 917.25 on Monday’s session.

But keep in mind: We’re as always talking about probabilities, not certainties.

Successful trading,

Frank

P.s.: I’ll regularly make some intraday updates as well using Twitter. If you’re interested in, please have a look at the blog during the trading session as well or subscribe directly to Twitter (recommended).

Disclaimer: Short ES (E-MINI S&P 500) at time of writing.