TRADING THE ODDS

As (the first week of) February goes …

TradingTheOdds — Sat, 04 Feb 2012 17:39:01 +0000

Major market indices closed at another multi-month high on February 3, 2012, and the endless number of bullish setups being triggered during the last couple of weeks proofed to be right (at least up to now).

The S&P 500 closed out the first week in February with a +2.17% (weekly) gain, closed at its highest level since July 22, 2011, at the same time up +6.94% year-to-date, and up +5.31% over the trailing month.

Although a couple of setups triggered on close of Friday’s session are indicating that upside potential may be limited over the course of the next two to three of days (e.g. 6-month high on Nonfarm Payroll release day w/ gap up, the S&P 500 and the SPY‘s (S&P 500 SPDR) closed more than 2 standard deviations above their upper Bollinger Bands, …), historical precedences are suggesting that any potential short-term weakness may be short-lived.

Table I below shows the S&P 500′ performance (cumulative returns) 1 week later, at the end of May (’3 month(s) later (EoM)’), at the end of September (’7 month(s) later (EoM)’) and at the end of the year (’at year’s end’) in the event

the S&P 500 was up ≥ 5.00% year-to-date (triggered on 02/01/2012), or
the S&P 500 was up ≥ 5.00% over the trailing month and closed at a 6-month high (triggered on 02/03/2012)

at any time during the first week in February.

Results are quite impressive. The S&P 500 closed at an even higher level

1 week later in 3 out of every 4 occurrences (years),
at the end of May in 16 out of 19 years,
at the end of September in all 19 years, and
at the end of the year in 18 out of 19 years.

In addition, between the trigger day and the final session of the respective year, the S&P 500 closed above the trigger day’s close on (almost) 9 out of every 10 sessions (or on average 88.33% of the time).

(click on image to enlarge)

Table I
S&P 500 rallies right at the start of the year

__________________

Conclusion(s)

It appears quite likely that – taking into account these minor adjustments to the so-called January Barometer (“As January goes, so goes the (rest of the) year”) – the S&P 500 will continue moving higher over the remainder of the year.

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)

Highs | Lows and Fed Days

TradingTheOdds — Fri, 27 Jan 2012 08:44:12 +0000

Major market indices closed at multi-month highs on January 25, 2012 (FOMC announcement session), followed by a (small) pullback on the then following (yesterday’s) session.

Looking at historical precedences when the SPY‘s (S&P 500 SPDR) had closed either at a 30-day high or low on an FOMC announcement session, followed by a lower close immediately thereafter, this had significantly positive implications over the course of the next couple of weeks.

Table I below shows the SPY‘s (S&P 500 SPDR) performance (cumulative returns) 1 day and 4 days later, at the end of the then following week (in this event on Friday, February 3), 2 weeks later (end-of-week), and at the end of the respective month in the event the SPY had closed either at a 30-day high or low on an FOMC announcement session, followed by a lower close immediately thereafter in the past.

Although returns the next day (in this event on Friday, January 27) had been mixed (notably a 1:6 ratio in favor of -1.0%+ moves on the downside), the SPY had closed at a higher level 4 days later, at the end of the then following week and 2 weeks later (end-of-week) on 17 | 18 | 19 out of 20 occurrences (with 1.0%+ moves on the upsides outnumbering -1.0%+ moves on the downside by an extraordinary wide margin), and had never closed lower -1.0%+ at the end of the month, but higher +1.0% on 16 out of 20 occurrences.

(click on image to enlarge)

Table I
SPY at 30-day high or low on FOMC announcement session. down thereafter

__________________

Conclusion(s)

For the time being, the trend most probably remains up, and lower prices (intraday or end-of-day) on Friday, January 27 might provide a favorable intermediate-term buying opportunity.

Have a profitable week,

Frank

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

________________________________

Disclaimer

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

Multi-Month High on FOMC Session

TradingTheOdds — Thu, 26 Jan 2012 06:26:35 +0000

Compliant to historical probabilities and odds, major market indices advanced (again) in response to the FED’s decision to leave rates unchanged for the foreseeable future.

S&P 500 and the SPY‘s (S&P 500 SPDR) closed at a 5-month high (and missed a 6-month high by a single day only; the last time the SPY closed this high was on July 26, 2011), while the Nasdaq 100 index closed at its highest level since February 6, 2001.

Historically, when the SPY had closed at a multi-month high on an FOMC announcement session in the past, this had regularly not been a top, leave alone the top.

Table I below shows the SPY‘s (S&P 500 SPDR) performance (cumulative returns) over the course of the then following week in the event the SPY had closed at an at least 5-month high on an FOMC announcement session in the past.

The SPY posted at least one higher close over the course of the then following week on all 24 previous occurrences, closed at an even higher level one week later on 4 out of every 5 occurrences (or almost 80% of the time), and 1.0%+ moves on the upside outnumbered -1.0%+ moves on the downside by a very wide margin (only one -1.0%+ loss 1, 3 and 4 days later).

(click on image to enlarge)

Table I
SPY at 5-month high on FOMC announcement session

__________________

Conclusion(s)

For the time being, the trend most probably remains up …

Have a profitable week,

Frank

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

________________________________

Disclaimer

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

Long Streaks of Not Losing

TradingTheOdds — Tue, 24 Jan 2012 21:41:32 +0000

Today marked the 17th consecutive session where the SPY‘s (S&P 500 SPDR) hasn’t lost more than -0.52% on a close to close basis (besides the fact that this is the 2nd lower close only during the last 11 sessions).

Historically, comparable streaks were regularly indicative of higher prices ahead.

Table I below shows the SPY‘s (S&P 500 SPDR) performance (cumulative returns) one, two, and three sessions, 1 week, 1 month later, and by the time the SPY posted its first lower close in excess of -0.55% in the event the SPY hadn’t lost -0.52% on a close to close basis for 17 or more trading days (for the first time in a two weeks time frame, means only the first occurrence during a 10 day time frame has been accounted for).

The SPY closed at an even higher level two days, three days, 1 week and 1 month later (on 17 out of the last 18 occurrences), and at the end of the month as well on 3 (or more) out of every 4 occurrences, and 1.0%+ moves on the upside outnumbered -1.0%+ moves on the downside by a very wide margin.

In addition, the SPY had never lost 1.0% on the then following session (in this event on Wednesday, January 25), and by the time the SPY lost -0.55% ending the then current streak, the index had closed more often on a (significantly) higher level (22x above the trigger day, 15x below the trigger day, and 11 : 3 closes up 1.0%+ vs. down -1.0%+).

(click on image to enlarge)

Table I
SPY did not loose -0.52% on the close on 17+ consecutive sessions

__________________

Conclusion(s)

For the time being, shorting the market most probably remains a receipt for disaster (and Wednesday will be an FOMC announcement session, another positive seasonality).

Have a profitable week,

Frank

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

________________________________

Disclaimer

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

Complacency at Multi-Month High

TradingTheOdds — Sun, 22 Jan 2012 20:25:43 +0000

Besides the fact that even betting on a one-day decline (leave alone calling a top) has been a receipt for disaster during 2012 (so far), complacency has set in (again) among retail investors.

On Friday, January 20, the VXO (CBOE S&P 100® Volatility Index) closed at a 6-month low, and the (annualized) 10-day historical (realized) volatility is close to a 9-month low.

Whilst some blog authors and websites are suggesting to stay alert, or that a top might be in, a far better (compared to betting on a stock market top) opportunity might be presented due to the fact that for a couple of years now a bunch of (leveraged) Volatility ETFs are available to the retail investor (complementary to CBOE volatility futures and options).

Table I below shows the VXO (CBOE S&P 100® Volatility Index) performance (since 1986) one week later, at the end of January (′at month’s end′), one month, two months and five months later in the event the VXO had not been this complacent over a 6-month period in January of a year (means the VXO had closed at a fresh 6-month low) in the past.

Volatility (realized and implied) almost always picked up shortly again (partly tremendously), and the VXO closed at a higher level one week later on 17 out of 18 occurrences, was up 1.0%+ at the end of January and one month later on all 18 occurrences, and higher 5 month later on 17 out of 18 occurrences as well.

(click on image to enlarge)

Table I
VXO (CBOE S&P 100® Volatility Index) posted a 6-month low in January

__________________

Table II below shows the first occurrence (per year only). The VXO hit a 6-month low in January for the 10th time since 1986, and was always trading 10.0%+ above January’s 6-month low at some time during the then following month.

(click on image to enlarge)

Table II
VXO (CBOE S&P 100® Volatility Index) posted a 6-month low in January

__________________

Conclusion(s)

January’s 6-month low with respect to the VXO (CBOE S&P 100® Volatility Index) might provide a favorable opportunity betting on implied (and historical) volatility picking up (possibly tremendously) over the course of the next couple of weeks and months.

Have a profitable week,

Frank

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

________________________________

Disclaimer

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

A Strong Prelude …

TradingTheOdds — Thu, 19 Jan 2012 21:52:43 +0000

The S&P 500 is up 4.52% year-to-date on Thursday, January 19, 2012, and provided that major market indices will not fall into a bottomless abyss on tomorrow’s option expiration, the S&P 500 will be up +2.0% year-to-date on close of the final session of the 3rd week in 2012, which had significantly positive implications for the remainder of the year in the past.

Table I below shows the S&P 500 performance (since 1950) one week later, at the end of January (′at month’s end′), and at the end of June (′5 month’s later′) and at the end of the year, followed by the percentage of days (of the remainder of the year) the S&P 500 was trading above and below the trigger day’s close until year’s end, in the event the S&P 500 was up 2.0%+ year-to-date on close of the final session of the 3rd week of a year.

The S&P 500 closed at an even higher level at the respective points in time (1 week, end-of-month, 30th of June and year’s end) in 9 out of 10 years, and closed lower -1.0%+ 1 week, at the end of January and at the end of June only once (but up 1.0%+ in 12 and 18 years respectively), and at year’s end in 2 years only, but up 1.0%+ in 20 out of 22 years.

Most remarkable, on average the S&P 500 had been trading at a higher level 85.07% of the remainder (remaining sessions) of the year (and lower 14.93% respectively), therefore the trend was clearly up, and downside potential limited.

(click on image to enlarge)

Table I
SPX.X up 2.0%+ year-to-date at the end of the 3rd week

__________________

But what happend when the S&P 500 was down year-to-date at the same point in time ?

Table II below shows the S&P 500 performance (since 1950) one week later, at the end of January (′at month’s end′), and at the end of June (′5 month’s later′) and at the end of the year, followed by the percentage of days (of the remainder of the year) the S&P 500 was trading above and below the trigger day’s close until year’s end in the event the S&P 500 was down -1.0%+ year-to-date on close of the final session of the 3rd week of a year.

Performance over the remainder of the year had been mixed at best, actually short-term negative, and more or less like a coin toss looking out at the end of June and at year’s end.

(click on image to enlarge)

Table II
SPX.X down -1.0%+ year-to-date at the end of the 3rd week

__________________

Conclusion(s)

Probabilities and odds are still calling for some downside on tomorrow’s option expiration, but if history provides any guidance, the S&P 500 ll probably remain on firm path over the course of the remainder of th year.

Have a profitable week,

Frank

Disclosure: No position in the securities mentioned in this post at time of writing.
(Short DAX German Aktien Index)

________________________________

Disclaimer

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

Multi-Month High during OpEx Week

TradingTheOdds — Wed, 18 Jan 2012 20:38:48 +0000

Up to now major market indices defy all (seasonal) odds (hitting a fresh multi-month high on Wednesday, January 18), with SPY‘s (S&P 500 SPDR) closing out the week including the Martin Luther King, Jr. Day exchange holiday with a loss in 10 out of the last 14 years since the holiday was started in 1998.

But this week is option expiration (OpEx) week as well, and the the SPY‘s (S&P 500 SPDR) shows a statistically significant (to say the least) tendency to reverse course until and at OpEx when closing at a 3-month high during the week before OpEx in the past.

Table I below shows the SPY‘s (S&P 500 SPDR) performance (since 1988) one, two, and three sessions later, followed by option expiration (OpEx) Friday and at the end of the month assumed one went long on close of a session where the SPY closed at an at least 3-month high at any time during option expiration week.

Besides the fact that the SPY shows a significantly above average probability for closing at a lower level on OpEx Friday (on 50 out of 84 occurrences since 1988), it is especially remarkable that upside potential had been more or less non-existent (quite the opposite applies to downside potential). The SPY closed higher 1.0%+ on OpEx only once (max. gain +1.04% in May 1989), but lower -1.0%+ on 22 out of 84 occurrences (months).

In addition, the SPY closed lower the next day (in this event on Thursday, January 19) on two out of every three occurrences (thereof on 13 out of the last 16, with a max. gain +0.54% out of the last 40 occurrences), up 1.0%+ only once, whilst lower -1.0%+ on 10 occurrences.

(click on image to enlarge)

Table I
SPY closing at a 3-month high during OpEx week

__________________

Conclusion(s)

For the time being the trend is up, and everything seems possible, but 84 occurrences (since 1988) is quite an impressive sample size to bet against …

Have a profitable week,

Frank

Disclosure: No position in the securities mentioned in this post at time of writing.
(Short DAX German Aktien Index)

________________________________

Disclaimer

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

Martin Luther King, Jr. Day and Week

TradingTheOdds — Fri, 13 Jan 2012 20:03:58 +0000

Next week will be the week including Martin Luther King, Jr. Day, a United States federal holiday and an exchange holiday since 1998 (observed on the third Monday of January).

From a seasonal perspective, the week including Martin Luther King, Jr. Day favors the bears (but the good news follow suit, see the second part of the posting below). Table I below shows the SPY‘s (S&P 500 SPDR) performance (since 1998) during Martin Luther King, Jr. week (‘4 sessions later‘ equals ‘by the end of the week‘) assumed one went long on close of the final session of the week immediately preceding Martin Luther King, Jr. Day (in this event on Friday, January 13).

The SPY closed out Martin Luther King, Jr. week with a loss in 10 out of 14 years, an closed higher 1.0%+ only once, but lower 1.0%+ in 7 years. In addition, the SPY posted a least one lower close in 13 out of the last 14 years.

(click on image to enlarge)

Table I
SPY during Martin Luther King, Jr. week

__________________

At time of writing (2:40 pm ET), the S&P 500 is still up week-to-date, and up ≥ 1.25% month-to-date on the session immediately preceding the third Monday of January (Martin Luther King, Jr. Day since 1998).

Assumed that will not change (to the worse) into today’s close, this will have significantly positive implications for the remainder of the month.

Table II below shows the S&P 500′s performance (since 1950) over the remainder of the month (on the session immediately following Martin Luther King, Jr. Day, until the end of the next week, until the end of the then following two weeks, and until the end of January) in the event one went long on close of the session immediately preceding the third Monday in January where the S&P 500 had closed out the week with a gain, at the same time up ≥ 1.25% month-to-date as well.

The S&P 500 closed at a higher level at the end of the then following week (in this event on Friday, January 27) and at the end of January on more than 3 out of every 4 occurrences (or ≥ 75% of the time), but especially remarkable is the fact that the S&P 500 up to now never lost 1.0%+ until the end of January, but gained 1.0%+ on 15 occurrences (when the S&P 500 had performed positively in the first half of January in the past, it regularly had remained firm during the second part as well).

(click on image to enlarge)

Table II
S&P 500 up week- and month-to-date before 3rd Monday in January

__________________

Conclusion(s)

Seasonals are confirming the bearish bias going into effect at today’s close (see SPX at Multi Month High before OpEx), but to the same degree confirming the assumption that a pull back might be short lived (and lower prices during the next week will probably provide a buying opportunity), and major market indices are supposed to bounce back and continue higher over the remainder of the month.

Have a profitable week, and enjoy your holiday

Frank

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

________________________________

Disclaimer

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

________________________________

SPX at Multi Month High before OpEx

TradingTheOdds — Thu, 12 Jan 2012 16:29:06 +0000

Next week will be option expiration week, and the S&P 500 is currently trading at (or close to) a multi-month high.

Therefore I thought it would be interesting to check if option expiration week historically favors the bulls and a continuation of the then current uptrend in the markets, or the bears betting on a (short-term) mean-reversion / market dip on profit-taking.

Table I below shows the S&P 500′s performance (since 1974, standardized exchange traded call options were released for trading by the Chicago Board of Options Exchange (CBOE) and the Options Clearing Corporation (OCC) in 1973) over the course of option expiration week in the event one went long on close of the last session of the week immediately preceding option expiration week (in this event on Friday, January 13, 2012) where the S&P 500 had closed at a (trailing) 3 (or more) month high at least once during the week (on the trigger day, or at least once during the preceding four sessions) immediately preceding option expiration week (like the S&P 500 did on Wednesday, January 11, 2012).

Please note: the setup had already been triggered and will go into effect on close of Friday, January 13, 2012, independently from today’s or tomorrow’s outcome.

Obviously the table is painted in red. The S&P 500 closed at a lower level (compared to the previous week’s close) two and three days into option expiration week on 3 out of every 4 (to be exact: on 31 out of 40) occurrences, and closed out option expiration week with a loss on 29 out of 40 occurrences (or almost 75% of the time).

In addition, the S&P never gained 1.0%+ over the course of the next three days since 06/08/1990 (20 years and 20 occurrences ago), and posted at least one lower close below the trigger day’s close during option expiration week on 37 out of 40 occurrences.

(click on image to enlarge)

Table I
SPX at 3 month high the week before OpEx

__________________

Conclusion(s)

During January’s option expiration week, historical precedents favor the bears, and major market indices will probably take a breather from the recent run-up to a multi-month high before we could see a resumption of the rally.

Have a profitable week,

Frank

Disclosure: Long Market Vectors^® Retail ETF (RTH) – Short SPDR® S&P 500® ETF (SPY)
(Pairs Trade)

________________________________

Disclaimer

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

________________________________

Three Month High and NYSE McClellan Oscillator

TradingTheOdds — Wed, 11 Jan 2012 21:25:57 +0000

The SPY‘s (S&P 500 SPDR) closed marginally higher today, immediately following a multi month high (as expected trading in a tight range today).

When the SPY closed at its highest level since July 29, 2011, on yesterday’s session, the record level was fully confirmed by a rising number of net advances (advancing less declining issues on the NYSE) and a NYSE McClellan Oscillator closing in positive territory on the 13th straight day, at the same time closing above the 100 threshold.

Historically, when a multi month high is confirmed by an advance-decline statistics, this had positive implications for the intermediate-term.

Table I below shows the SPY‘s performance over the course of the next couple of sessions, until the end of the respective week, until the end of the month and until the end of the then following month in the event the SPY closed at a 3 (or more) month high for the first time in a month, whilst at the same time the (ratio adjusted) NYSE McClellan Oscillator closed above the 100 threshold.

Although chances for posting another higher close one or two sessions later are significantly above the market’s random chance for closing higher one or two days later (on 4 out of every 5 occurrences – or 80% of the time – one session later), upside potential had regularly been limited (two occurrences only with a better than 1.0%+ gain two days later).

But looking out at the end of the respective month, and until the end of the then following month, probabilities and odds are (heavily) tilt in favor of (significantly) higher prices ahead. The SPY closed at a higher level on more or less 3 out of every 4 occurrences (approximately 75% of the time), but especially remarkabe is the fact that 1.0%+ moves on the upside outnumbered 1.0%+ moves on the downside by a very wide margin (14 : 2 and 17 : 3 respectively).

(click on image to enlarge)

Table I
SPY w/ 3 month high, NYSE McClellan Oscillator > 100

__________________

Now Table II below shows the SPY‘s performance over the course of the next couple of sessions, until the end of the respective week, until the end of the month and until the end of the then following month in the event the SPY closed at a 3 (or more) month high for the first time in a month, whilst at the same time the (ratio adjusted) NYSE McClellan Oscillator closed above the 100 threshold, and in positive territory for at least 10 days in a row.

Out of 20 occurrences, the SPY had never been up 1.0%+ two days later, but down 1.0%+ at the end of the respective month and one month later (in this event on February 29, 2012) only once (with an associated 9 : 1 and 15 : 1 ratio of 1.0%+ moves on the upside versus downside).

(click on image to enlarge)

Table II
SPY w/ 3 month high, NYSE McClellan Oscillator > 100, positive for 10+ days

__________________

Conclusion(s)

Probabilities and odds are tilt in favor of a continuation of the rally in the market’s …

Have a profitable week,

Frank

Disclosure: Long Market Vectors^® Retail ETF (RTH) – Short SPDR® S&P 500® ETF (SPY)
(Pairs Trade)

________________________________

Disclaimer

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

________________________________