TRADING THE ODDS

With Wednesday’s session, the SPY posted a second consecutive higher close, but closed below the open (a black ‘candle‘) on both sessions.

Although initially one might consider this market behaviour as a short-term bearish pattern, historical occurrences and respective probabilities and odds tell a different story.

Table I below shows the SPY’s historical intraday performance (since 01/01/1990) on the  the intraday low, during the first hour of the session, at the start of the last hour in comparison to the previous session’s close,  during the last hour of the session and on the close whenever the SPY had posted two consecutive higher closes in the past, but closed below the open (a black ‘candle‘) on both sessions:

Interesting to note that historically on the then following session (in this event on Thursday, March 4), the SPY

• left an unfilled opening gap up (an intraday low above the previous session’s close) buyers on 9 out of 27 occurrences (every third session), significantly above the at-any-time odds for leaving an unfilled opening gap up,
• showed a positive performance during the first hour of the session on 25 out of 27 occurrences (historically downside momentum during the first hour was almost non-existent),
• was trading at a higher level (in comparison to the previous session’s close) at the start of the last hour again on 25 out of 27 occurrences,
• closed higher on 23 out of those 27 occurrences,
• but (repeatedly after already having posted two consecutive closes below the open) showed a negative performance during the last hour of the session.

Regularly whenever the setup had been triggered in the past, the weakest part of the then following session was the open, historically providing a favorable intraday and short-term edge on the long side of the market right at the start of the session. But take into account that 27 occurrences is not something to read anything statistically relevant into it (although probabilities and odds are heavily lopsided on the bullish side at least between the open and the start of the last hour of the session), and a couple of other pattern suggest at least a modest consolidation (a down day) on Thursday’s session.

Successful trading,
Frank

P.s.: The Market Model is short going into Thursday’s session due to the fact that everything else except the pattern discussed above suggests a down day.

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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.

The RSI-High/Low(2) indicator seems to provide a good indication that buyers will not let the market go down without a fight (see my posting Modified RSI(2), Buying Power and Intermediate-Term Outlook ).

But today’s recovery from a significant intraday low of -1.70% and a close not lower than -0.25% (the SPY recouped more than -1.50% of it’s intraday losses into the close) does – from a historical and statistical perspective – not provide a positive indication for Friday’s potential performance during the session and on the close.

Table I below shows the SPY’s historical intraday performance (since 01/01/1990) on the open, the intraday low, during the first hour of the session, during the last hour of the session and on the close whenever the SPY had posted an intraday low of at least -1.70% below the previous sessions close in the past, but did not close lower than -0.25% on the day in conjunction with a close in the top 10th percentile of it’s daily intraday range (almost on the high):

Interesting to note that although on Friday’s session there is a good chance for an early (first hour) follow-through of today’s (Thursday’s) late strength, sellers regularly take the upper hand again during the second part of the then following session.

The SPY’s last hour’s performance following a session when this setup had been triggered in the past is everything else than bullish: four sessions with a positive and 20 sessions with a – partly significantly – negative performance during the last hour (the SPY lost at least -0.50% on 17 out of those 20 sessions with a negative performance during the last hour), and a lower close on 17 out of the total of 24 occurrences since 1990 (the last time the setup was triggered was on 02/05/2010).

But as always: Everything is possible but not necessarily probable.

Successful trading,
Frank

________________________________

If you might want to be instantly notified about what’s happening in the markets and at TRADING THE ODDS, I encourage you to subscribe to my RSS Feed or Email Feed, and (or) follow me on Twitter.

xx

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.