When almost all major Asian market indices closed higher on Monday’s session again (as it was already the case on Thursday’s and Friday’s session), probabilities and odds were again (the third day in a row) tilt in favor of a positive bias for the US major market indices.

In the past when Japan’s Nikkei 225, Hong Kong’s Hang Seng Index, Australia’s ASX All Ordinaries Index and Korea’s Composite Stock Price (KOSPI) Index closed up on the day, the ES (E-MINI S&P 500) showed a significantly above-average positive tendency on the close, and to an even more significant extent a tendency to take out the previous session’s intraday high and to NOT undercut the previous low for an at least limited downside potential (see the respective t-score on the stats which far exceeds the necessary 1.645 mark in order to be regarded as statistically significant).

The ES (E-MINI S&P 500) opened modestly lower -0.26% , posted an intraday low of -0.89% below Friday’s close, but again reversed course during the second half of the session and closed higher +0.23% on the day (right on the intraday high), while the Nasdaq 100 closed -with a gain of +0.02%- almost unchanged (S&P 500 +0.30%, DJ Ind. +0.17%, Russel 2000 +0.44%, SOX +0.58%, BKX +3.11%).

Market breadth on the NYSE was relatively strong, with NYSE Advancing Issues/Declining Issues at 1.83 and Advancing Volume/Declining Volume at 1.74 (NYSE TRIN / Arms Index at 1.05), and NASDAQ Advancing Issues/Declining Issues at 1.34 and NASDAQ Advancing Volume/Declining Volume at 1.71 (NASDAQ TRIN at 0.78). NYSE Advancing Volume accounted for 62.66% of NYSE volume. Speculative interest was running high again, with Nasdaq Volume / NYSE Volume at 207.64%, the fourth consecutive reading above 200% on the close (the first occurrence since 01/02/1990).

____________

Notably on Monday’s session were the facts that

• the ES (E-MINI S&P 500) posted a higher low (than the previous session’s low) on the 11th consecutive session,
• the ES (E-MINI S&P 500) posted a higher high (than the previous session’s high) on the 6th consecutive session,
• the ES (E-MINI S&P 500) closed above the previous session’s high on the 3rd consecutive session,
• the ES (E-MINI S&P 500) closed above the open on the 4th consecutive session,
• the ES (E-MINI S&P 500) couldn’t manage a gain of more than +0.25% despite relatively strong market breadth and despite a strong Banking Index which posted a gain of more than +3.0%,
• the ES (E-MINI S&P 500) under-performed the S&P 500 Equal Weighted Index ($SPXEW) by at least -0.25% the fourth day in a row,
• speculative interest was again running very high, with Nasdaq Volume / NYSE Volume at 207.64%, the fourth consecutive reading of > 200% on the close (the first occurrence since 01/02/1990),
• the VIX posted a gain of more than +5.0% despite a positive close for the S&P 500 (both are regularly negatively correlated).

xx

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

• Setup S1: the ES (E-MINI S&P 500) posted a higher low (than the previous session’s low) on eleven consecutive sessions,
• Setup S2: the ES (E-MINI S&P 500) posted a higher high (than the previous session’s high) on six consecutive sessions,
• Setup S3: the ES (E-MINI S&P 500) posted a higher low and a higher high on six consecutive sessions,
• Setup S4: the ES (E-MINI S&P 500) closed above the previous session’s high on three consecutive sessions,
• Setup S5: the ES (E-MINI S&P 500) closed above the open on four consecutive sessions,
• Setup S6: the ES (E-MINI S&P 500) posted a higher low and a higher high, closed above the open and above the previous session’s high on three consecutive sessions,
• Setup S7: the ES (E-MINI S&P 500) couldn’t manage a gain of more than +0.25% despite NYSE Advancing Issues/Declining Issues and NYSE Advancing Issues/Declining Volume > 1.70,
• Setup S8: the ES (E-MINI S&P 500) couldn’t manage a gain of more than +0.25% on a session where the Banking Index posted a gain of more than +3.0%,
• Setup S9: the ES (E-MINI S&P 500) under-performed the S&P 500 Equal Weighted Index ($SPXEW) by at least -0.25% on four consecutive sessions,
• Setup S10: Nasdaq Volume / NYSE Volume > 175% on four consecutive sessions,
• Setup S11: the VIX posted a gain of more than +5.0% despite a positive S&P 500, and the weekday is Monday (due to the fact that chances that the VIX will close up on a Monday are already better than 2:1),
• Setup S12: any of Setups S1 to S11 had been triggered (S1 OR S2 OR … OR S11).

Table I (click on the link below, the stats table doesn’t fit into the blog’s body) shows the ES (E-MINI S&P 500) performance (since 01/02/1990) on the next session (in this event Tuesday, July 28) immediately following those sessions where setups S1 to S12 listed above had been triggered in the past.

http://www.tradingtheodds.com/stats/2009-07-27-ES-S1-S12.png

With respect to the next session (in this event Tuesday, July 28), none of those setups listed above show a significant edge on the long or short side of the market. The same conclusion applies to intraday stats (open/high/low/close/close vs. open) concerning those session in 2009 where setup S12 (‘any of Setups S1 to S11 had been triggered (S1 OR S2 OR … OR S11)‘) had been triggered, although the setup shows a significant (better than at-any-time probabilities and odds) tendency that the ES (E-MINI S&P 500) will probably take out the previous (Monday’s) session’s intraday high (chances are 2:1) and will probably NOT post a low below the previous session’s (Monday’s) low (chances are again 2:1) for an at least limited downside potential.

________________________________

Bottom line:

We’re currently experiencing some kind of abnormal market conditions (means more than a couple of setups triggered recently were triggered only on a handful of occurrences since 01/02/1990, sometimes never before since 01/02/1990, and the market regularly rejected to go down when is was supposed to do so due to historical probabilities and odds which were sometimes significantly lopsided to the downside, and last but not least the market completely reversed it’s short-term mean reversion tendency lately), so probabilities and odds have -for the time being- to be taken with a pinch of salt (and at least positions sizing should be adjusted accordingly).

Under normal market conditions, and based on the respective probabilities and odds concerning those setups which were triggered on Monday’s close, the outlook concerning the ES’ (E-MINI S&P 500) performance on the next session (in this event Tuesday, July 28) is mixed, but downside potential will probably be limited.

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

When almost all major Asian market indices closed higher on Friday’s session again (as it was already the case on Thursday’s session), probabilities and odds were again significantly tilt in favor of a bullish bias for the US major market indices (see my Twitter Update at 10:51 AM Jul 24th, stats at http://twitpic.com/bqegp).

In the past when Japan’s Nikkei 225, Hong Kong’s Hang Seng Index, Australia’s ASX All Ordinaries Index and Korea’s Composite Stock Price (KOSPI) Index closed up on the day, the ES (E-MINI S&P 500) showed a significantly above-average positive tendency on the close, and to an even more significant extent a tendency to take out the previous session’s intraday high and to NOT undercut the previous low for an at least limited downside potential (see the respective t-score on the stats which far exceeds the necessary 1.645 mark in order to be regarded as statistically significant).

The ES (E-MINI S&P 500) opened modestly lower -0.21% , posted an intraday low of -0.67% below Thursday’s close shortly thereafter, but again reversed course during the second half of the session and posted an intraday high of +1.03% above Thursday’s close, and finally closed higher +0.90% on the day, while the Nasdaq 100 ended it’s streak of twelve consecutive higher closes with a loss of -0.15% on the day (S&P 500 +0.30%, DJ Ind. +0.26%, Russel 2000 +0.48%, SOX -1.26%, BKX unchanged).

Market breadth on the NYSE was relatively strong, with NYSE Advancing Issues/Declining Issues at 1.76 and Advancing Volume/Declining Volume at 1.79 (NYSE TRIN / Arms Index at 0.98), and NASDAQ Advancing Issues/Declining Issues at 1.25 and NASDAQ Advancing Volume/Declining Volume at 0.88 (NASDAQ TRIN at 1.41). NYSE Advancing Volume accounted for 62.61% of NYSE volume. Speculative interest was running high again, with Nasdaq Volume / NYSE Volume at 220.76%, the third consecutive reading above 220% on the close (the first occurrence since 01/02/1990).

____________

Notably on Friday’s session were the facts that

• the ES (E-MINI S&P 500) posted a higher low (than the previous session’s low) on the 10th consecutive session,
• the ES (E-MINI S&P 500) posted a higher high (than the previous session’s high) on the 5th consecutive session,
• speculative interest was running very high, with Nasdaq Volume / NYSE Volume at 220.76%, the third consecutive reading of > 220% on the close (the first occurrence since 01/02/1990),
• the VIX posted a lower lower high on the 6th consecutive session, and a lower low on the 4th consecutive session.

xx

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

• Setup S1: the ES (E-MINI S&P 500) posted a higher low (than the previous session’s low) on ten consecutive sessions,
• Setup S2: the ES (E-MINI S&P 500) posted a higher high (than the previous session’s high) on five consecutive sessions,
• Setup S3: the ES (E-MINI S&P 500) posted a higher low and a higher high on five consecutive sessions,
• Setup S4: Nasdaq Volume / NYSE Volume > 175% on three consecutive sessions,
• Setup S5: the VIX posted a lower low and a lower high on four consecutive sessions,
• Setup S6:the ES (E-MINI S&P 500) posted a gain of > +2.0% and > +0.75% on the last two session, and
• Setup S7: any of Setups S1 to S6 had been triggered (S1 OR S2 OR … OR S6).

With respect to the next session (in this event Monday, July 27), neither of those setups listed above show a significant edge on the long or short side of the market, so Asian markets on Monday morning might provide a clue what to expect from US major market indices on Monday’s session. But looking forward five sessions ahead, probabilities and odds will probably be tilt in favor of some downside ahead, at least pointing to limited upside potential over the course of the then following five sessions.

Table I (click on the link below, the stats table doesn’t fit into the blog’s body) shows the ES (E-MINI S&P 500) performance (since 01/01/1995) over the course of the then following five sessions (in this event until Friday, July 31) immediately following those sessions where any of Setups S1 to S6 listed above had been triggered in the past.

http://www.tradingtheodds.com/stats/2009-07-24-ES-S1-S7.png

At least with respect to historical occurrences and the respective probabilities and odds, the overall bias is negative, due to a significantly below-average probability for a higher close 5 sessions later (35.11% in comparison to an at-any-time probability of 53.14% for a higher close five sessions later), a significantly below-average profit factor (0.53 in comparison to an at-any-time profit factor of 0.95), and a negative t-score, with -1.96 exceeding the necessary mark of -1.645 for statistical significance (there is a low probability that below-average daily returns of setups S1 to S6 in comparison to at-any-time daily returns occurred by chance only).

________________________________

Bottom line:

We’re currently experiencing some kind of abnormal market conditions (means more than a couple of setups triggered recently were triggered only on a handful of occurrences since 01/02/1990, sometimes never before since 01/02/1990, and the market regularly rejected to go down when is was supposed to do so due to historical probabilities and odds which were sometimes significantly lopsided to the downside, and last but not least the market completely reversed it’s short-term mean reversion tendency lately), so probabilities and odds have -for the time being- to be taken with a pinch of salt (and at least positions sizing should be adjusted accordingly).

Under normal market conditions, and based on the respective probabilities and odds concerning those setups which were triggered on Friday’s close, the outlook concerning the ES’ (E-MINI S&P 500) performance over the course of the following five sessions (in this event until Friday, July 31) is slightly negative, and additional upside potential will probably be limited.

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

When almost all major Asian market indices closed higher on Thursday’s session, probabilities and odds were significantly tilt in favor of a bullish bias for the US major market indices on their Thursday session as well (see my Twitter Update at 07:48am CET, and 07:52am CET, stats at http://twitpic.com/bbgan).

In the past when Japan’s Nikkei 225, Hong Kong’s Hang Seng Index, Australia’s ASX All Ordinaries Index and Korea’s Composite Stock Price (KOSPI) Index closed up on the day, the ES (E-MINI S&P 500) showed a significantly above-average positive tendency on the close, and to an even more significant extent a tendency to take out the previous session’s intraday high and to NOT undercut the previous low for an at least limited downside potential (see the respective t-score on the stats which far exceeds the necessary 1.645 mark in order to be regarded as statistically significant).

The ES (E-MINI S&P 500) opened modestly higher +0.21% (which already marked the low for the day), posted an intraday high of +2.84% above Wednesday’s close, and finally closed higher +2.05% on the day, while the Nasdaq 100 posted it’s twelveth consecutive session with a higher close, this time +2.33% (S&P 500 +2.33%, DJ Ind. +2.12%, Russel 2000 +3.24%, SOX +0.98%, BKX +2.95%).

In 1990 the Nasdaq 100 posted 19 consecutive sessions with a higher close (from 04/25/1990 to 05/24/1990), since 01/02/1990 the maximum number of consecutive higher closes.

Market breadth on the NYSE was exceptionally strong, with NYSE Advancing Issues/Declining Issues at 4.89 and Advancing Volume/Declining Volume at 5.15 (NYSE TRIN / Arms Index at 0.95), and NASDAQ Advancing Issues/Declining Issues at 3.36 and NASDAQ Advancing Volume/Declining Volume at 4.49 (NASDAQ TRIN at 0.75). NYSE Advancing Volume accounted for 83.13% of NYSE volume. Speculative interest was running extremly high, with Nasdaq Volume / NYSE Volume at 222.14%. Since 02/01/1990 there were only 6 other sessions where the ratio of Nasdaq Volume / NYSE Volume closed above 220%.

____________

Notably on Thursday’s session were the facts that

• the ES (E-MINI S&P 500) posted a higher low (than the previous session’s low) on the 9th consecutive session,
• the ES (E-MINI S&P 500) closed at least -0.75% below it’s intraday high on the second consecutive session (a weakness on the close in comparison to the already achieved intraday high),
• the Nasdaq 100 posted a higher close on the 12th consecutive session,
• speculative interest was running very high, with Nasdaq Volume / NYSE Volume at 221.14%,
• the VIX posted a lower low and a lower high on the 5th consecutive session.

xx

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

• Setup S1: the ES (E-MINI S&P 500) posted a higher low (than the previous session’s low) on nine consecutive sessions
• Setup S2: the ES (E-MINI S&P 500) closed at least -0.75% below it’s intraday high on two consecutive sessions,
• Setup S3: the ES (E-MINI S&P 500) closed up at least +2.0% on the day,
• Setup S4:NYSE Advancing Issues/Declining Issues and Advancing Volume/Declining Volume both closed above +4.75,
• Setup S5: Nasdaq Volume / NYSE Volume > 220%,
• Setup S6: the VIX opened lower and posted a lower low and a lower high on five consecutive sessions,
• Setup S7: the Nasdaq 100 posted a higher close on twelve consecutive sessions, and
• Setup S8: any of Setups S1 to S8 had been triggered (S1 OR S2 OR … OR S8).

Table I (click on the link below, the stats table doesn’t fit into the blog’s body) shows the ES (E-MINI S&P 500) performance (since 01/02/1990) on the next session (in this event Friday, July 24) immediately following those sessions where setups S1 to S8 listed above had been triggered in the past.

http://www.tradingtheodds.com/stats/2009-07-23-ES-S1-S8.png

The overall bias is mixed, setups S1 to S3 show a positive tendency while setups S4 to S7 show a (somtimes significantly) negative tendency on the then following session (but with a regularly smaller sample size). Therefore on setup S8 (any of those setups S1 to S7 had been triggered) the t-score doesn’t show any statistically significant probability that there is an edge on either side of the market (although the tendency is slightly negative).

But due to the fact that on 13 of those 14 occurrences where the Nasdaq 100 posted 11 consecutive higher closes in the past (see Wednesday’s posting at Trading the Odds on Thursday – July 23, 2009), the ES (E-MINI S&P 500) posted at least one lower close below the trigger day’s close (in this event Wednesday’s close) over the course of the then following five sessions, bears will probably get their chance to temporarily erase Thursday’s gains over the course of the next couple of session.

Table II now shows the ES (E-MINI S&P 500) intraday performance (since 01/01/2005) concerning the open, high, low, close (compared to the previous’s session close) and close versus open on those sessions (in this event Friday, July 24) immediately following those 49 sessions (since 10/01/2008, 274 occurrences since 1990) where setup S8 had been triggered (‘any of Setups S1 to S7 had been triggered (S1 OR S2 OR … OR S7)‘), representing the ‘overall‘ ( including best case / worst case) bullish or bearish tendency on the then following session after any of those setups listed above had been triggered on close of the previous trading day.

With respect to setup S8 (‘any of Setups S1 to S7 had been triggered (S1 OR S2 OR … OR S7)‘) and the ES’ (E-MINI S&P 500) intraday performance on the then following session (in this event Friday, July 24) in the past (22 occurrences since 01/01/2005), it is notable that the ES (E-MINI S&P 500) shows a slightly negative tendency on the open, intraday high, intraday low, close and close versus open as well due to a below-average probability for a winning trade (means a potential higher open, higher high, higher low, a higher close and a close above the open), a below-average profit factor (sum of all profits divided by the sum of all losses, concerning the open, high and low only in order to demonstrate the potential direction, up-/down-side potential and magnitude of change) and a negative t-score (although not exceeding the necessary mark of +/- 1.645 for statistical significance).

Especially notable is the fact that the ES (E-MINI S&P 500) opened lower on 33 out of the last 48 sessions where any of setups S1 to S7 had been triggered in the past, for a probability of 30.61% for a higher open only, significantly below the respective at-any-time probability of 50.73% for a higher open on the then following session.

________________________________

Bottom line:

We’re currently experiencing some kind of abnormal market conditions, so probabilities and odds have -for the time being- to be taken with a pinch of salt (and at least positions sizing should be adjusted accordingly).

Under normal market conditions, and based on the respective probabilities and odds concerning those setups which were triggered on Thursday’s close, the outlook concerning the ES’ (E-MINI S&P 500) performance on Friday’s session is slightly negative, but Asian markets on Friday morning might provide an indication (as it was the case on Thursday’s session) if -and to what extend- probabilities and odds may be skewed in favor of a bullish or bearish outcome.

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

With ES (E-MINI S&P 500) up +15.50/+1.75% after Intel’s profit and sales blew past Wall Street’s forecasts, it doesn’t make sense to publish a posting based on those setups which were triggered on Tuesday’s close. Posting will resume after Wednesday’s close.

_________________

Although US major market indices complied to the positive outlook based on those setups which were triggered on Friday’s close (see my posting Trading the Odds on Monday – July 13, 2009), Asian markets on Monday morning were (for the most part) misleading concerning the question what to expect from the following session in the US (except the supposed close above the open with chances 2:1 and a significant above-average profit factor, see my Twitter Updates).

Whenever Japan’s Nikkei 222 closed lower < -2.50%, Hong Kongs’ Hang Seng Index < -2.50%, Australia’s ASX All Ordinaries Index < -1.25% and Korea’S KOSPI Index < -3.50% on the same session in the past (16 occurrences since 02/01/1990), the ES (E-MINI S&P 500) posted a low at least -2.41% below the previous session’s close, and closed up better than +2% only once on the then following session (therefore when the ES E-MINI S&P 500 had recouped it’s GLOBEX overnight loss of -1.0%, I went short before the open targeting a significantly lower low during the session, but was -of course- stopped out).

The ES (E-MINI S&P 500) opened higher +0.43%, posted an intraday low of -0.34% below and an intraday high of +2.69% above Friday’s close, and finally closed higher +2.43% on the day, while the Nasdaq 100 (slightly under-performing) ended the session with a gain of +1.96% (S&P 500 +2.49%, SPY +2.44%, DJ Ind. +2.27%, Russel 2000 +2.56%, SOX +2.41%, BKX +6.53%).

Market breadth on the NYSE was exceptionally strong, with NYSE Advancing Issues/Declining Issues at 5.56 and Advancing Volume/Declining Volume at 10.32 (NYSE TRIN / Arms Index at 0.54), and NASDAQ Advancing Issues/Declining Issues at 2.69 and NASDAQ Advancing Volume/Declining Volume at 5.45 (NASDAQ TRIN at 0.49). NYSE Advancing Volume accounted for 90.36% of NYSE volume for a so called 90% up day.

____________

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

• Setup S1: the ES (E-MINI S&P 500) posted a gain of at least +2.25% on the close,
• Setup S2: NYSE Advancing Issues/Declining Issues closed above 5, and Advancing Volume/Declining Volume closed above 10,
• Setup S3: Setup S1 and Setup S2 combined, and
• Setup S4: option expiration weak, and the ES (E-MINI S&P 500) started with a gain of at least +2.25% into the week.

Table I shows the ES (E-MINI S&P 500) performance (since 01/02/1990) on the next session (in this event Tuesday, July 14) immediately following those sessions where setups S1 to S3 listed above had been triggered in the past.

All setups are agreeing concerning their slightly negative outlook on the then following session, not that much with respect to the chances for another higher close on the then following session which are more or less even, but due to a below-average profit factor (sum of all profits divided by the sum of all losses) which regularly (partly significantly) undercuts the respective at-any-time profit factor.

Table II now 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 Tuesday, July 14) immediately following those 15 sessions where setup S3 had been triggered (‘the ES (E-MINI S&P 500) posted a gain of at least +2.25% on the close, and NYSE Advancing Issues/Declining Issues closed above 5, and Advancing Volume/Declining Volume closed above 10‘) in the past.

With respect to setup S3 (‘‘the ES (E-MINI S&P 500) posted a gain of at least +2.25% on the close, and NYSE Advancing Issues/Declining Issues closed above 5, and Advancing Volume/Declining Volume closed above 10 ‘), it is especially remarkable that

• the ES (E-MINI S&P 500) showed a significantly above-average tendency for some intraday follow-through on the previous session’s strength (all sessions posted a high above the previous session’s close -no unfilled opening gap on the downside-, with an average intraday high of +1.22% above the previous session’s close), but
• upside potential on the close and close versus open is regularly limited to say the least, with a profit factor of 0.47 on the close and 0.28 on the close verus open only. Up to now although chances for another higher close are silghtly above-average, the ES (E-MINI S&P 500) never closed up +1.0% or more on the then following session, and on average closed -0.56% below the open.

________________________________

Bottom line:

With respect to Tuesday’s session and based on the respective probabilities and odds concerning those setups which were triggered on Monday’s close, the outlook concerning the ES’ (E-MINI S&P 500) performance is slightly negative (not with respect to the chances for another higher close, but with respect to the ES‘ (E-MINI S&P 500) expectancy which is well below-average). Although we might see follow-through of Monday’s strength during Tuesday’s session, upside potential will probably be limited, and the ES (E-MINI S&P 500) regularly closed below the open (especially in the event of a higher 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: No positions in the securities mentioned in this post at time of writing.

Contrary to what historical probabilities and odds suggested concerning the probable magnitude of change on the open, the high, the low, the close and the close versus open on those sessions immediatley preceding the 4th of July holiday (since 1990, and out of 19 x 5 = 95 performance figures concerning the open/high/low/close/close vs. open there were only 11 figures which exceeded the +/- 1.0% bar, and there was not a single figure exceeding the +/-2.0% bar), this time the ES (E-MINI S&P 500) added the maximum of 5 figures (open/high/low/close/close vs. open) exceeding the -1.0% mark to it’s historical performance stats.

Although Thursday’s posting and forecast got the direction of the move right based on those negative setups which were triggered on Wednesday’s close, e.g. the negative NYSE TRIN divergence (see my posting Trading the Odds on Thursday – July 2, 2009), I closed my shorts way too early and missed the biggest part of the move because I did not expect such an outside day on a session which historically showed (up to now) -with a maximum reliability and consistancy- one of the narrowest trading ranges of the year (but I’m trading probabilities, not possibilities).

___________

On Thursday’s session the ES (E-MINI S&P 500) gapped lower -1.33% on the open (which already marked the high for the day), went straight down and subsequently posted an intraday low of -2.87% below Wednesday’s close, and finally closed lower -2.85% on the day (almost on the low), while the Nasdaq 100 ended the session with a loss of -2.37%.

Market breadth on the NYSE and the NASDAQ was heavily lopsided on the downside, with NYSE Advancing Issues/Declining Issues at 0.24, and Advancing Volume/Declining Volume at 0.06 (NYSE TRIN / Arms Index at 3.84), and NASDAQ Advancing Issues/Declining Issues at 0.22 and NASDAQ Advancing Volume/Declining Volume at 0.12 (NASDAQ TRIN at 1.79). Volume on declining stocks on the NYSE accounted for 93.89% of NYSE Volume for a so-called 90% Down Day, and NYSE Volume came in significantly lower than NYSE Volume on Wednesday’s session for it’s lowest reading since 12/24/2007 (more than 18 month).

On Thursday’s session is was especially notable that:

• the ES (E-MINI S&P 500) left an unfilled opening gap of -1.33% on the downside (open below the previous session’s close, and intraday high below the previous session’s close) ,
• the ES (E-MINI S&P 500) left an unfilled gap of -1.20% on the downside (intraday high below the previous session’s low),
• Volume on declining stocks on the NYSE accounted for more than 90% of NYSE Volume for a so-called 90% Down Day,
• NYSE Volume posted it’s lowest reading since 12/24/2007, and
  
• the ratio of Nasdaq Volume / NYSE Volume closed at 2.69 (speculative interest running exponentially high).

Interestingly Asian markets were not overly impressed by the less than stellar performance of US major market indices and closed either modestly lower (e.g Japan’s Nikkei 225, except Sydney’s ASX All Ordinaries Index which lost -1.25% on Friday’s session, but a lot less than it’s US counterparts the session before) or even slightly higher (Hong Kong’s Hang Seng Index, Korea’s KOSPI Index) on Friday’s session.

I therefore checked -as always from a historical and statistical perspective- for the market’s performance on the then following session(s) after those setups listed above (which were all triggered on Thursday’s close) had been triggered in the past:

• Setup S1: the ES (E-MINI S&P 500) closed lower at least -2.75% ,
• Setup S2: Volume on declining stocks on the NYSE accounted for more than 90% of NYSE Volume ,
• Setup S3: the ES (E-MINI S&P 500) closed lower at least -2.75% AND Volume on declining stocks on the NYSE accounted for more than 90% of NYSE Volume -Setups S1 and S2 combined- ,
• Setup S4: the ES (E-MINI S&P 500) closed lower at least -2.75% OR Volume on declining stocks on the NYSE accounted for more than 90% of NYSE Volume on a day where NYSE Volume posted its lowest reading for the last 10 sessiosn,
• Setup S5: the ES (E-MINI S&P 500) closed lower at least -2.75% , and neither Japan’s Nikkei 225 nor Hong Kong’s Hang Seng Index nor Korea’s KOSPI Index lost more than -0.75% the next day,
• Setup S6: the ES (E-MINI S&P 500) left an unfilled opening gap on the downside greater than -1.00% (open at least -1.00% below the previous session’s close, and intraday high below the previous session’s close),
• Setup S7: the ES (E-MINI S&P 500) left an unfilled gap on the downside greater than -1.20% (intraday high below the previous session’s low),

and in order to check if the ES’ (E-MINI S&P 500) open on the then following session might give an additional indication concerning the next session’s probable outcome

• Setup S8: the ES (E-MINI S&P 500) closed lower at least -2.75% OR Volume on declining stocks on the NYSE accounted for more than 90% of NYSE Volume, and the ES (E-MINI S&P 500) opened higher on the next session -in this event Monday July 6-, and finally
• Setup S9: the ES (E-MINI S&P 500) closed lower at least -2.75% OR Volume on declining stocks on the NYSE accounted for more than 90% of NYSE Volume, and the ES (E-MINI S&P 500) opened lower on the next session -in this event Monday July 6-.

Table I (click on the link below, the stats table doesn’t fit into the blog’s body) shows the ES (E-MINI S&P 500) performance (since 01/02/1990) on the next session (in this event Monday, July 6) immediately following those sessions where setups S1 to S9 listed above had been triggered in the past.

http://www.tradingtheodds.com/stats/2009-07-02-ES-S1-S9.png

With respect to those setups where either the ES (E-MINI S&P 500) closed lower at least -2.75% AND/OR Volume on declining stocks on the NYSE accounted for more than 90% of NYSE Volume (Setups S1, S2, S3), especially if followed by modest losses in Asian markets the next day (Setup S5) like it was the fact on Friday’s session, probabilities (but only to a minor extent) for a higher close and odds (profit factor as the sum of all profits divided by the sum of all losses, to a more significant extent) are tilt in favor of a positive bias on the then following session. But the fact that the sharp decline on Thursday’s session happened on an anemic NYSE volume doesn’t help (Setup S4, although with an above-average probability for a higher close, but significantly below-average profit factor).

For the first time I’ve added some respective intraday stats as well (see Average Intraday High, Average Intraday Low and Intraday Profit Factor). And although concerning setups S1, S2, S3 the profit factor on the close is significantly above 1 (and regularly significantly above-average as well), the intraday profit factor as the sum of all percentage-wise intraday highs divided by the sum of all percentage-wise intraday lows (for statistical purposes only in order to evaluate and demonstrate if -and to what extent- the market is trading on a more positive or negative note during the session, and if the market regularly sees some follow-through of the previous session’s strength or weakness or regularly almost immediately reverses course quite after the open) significantly undercuts the respective profit factor on the close and/or barely makes it above 1, which means the market regularly experiences some follow-through of the previous session’s weakness, but with an above-average probability for a happy ending on the close.

But fortunately whenever the ES (E-MINI S&P 500) closed lower at least -2.75% AND/OR Volume on declining stocks on the NYSE accounted for more than 90% of NYSE Volume (Setups S1, S2, S3) in the past, the next session’ opening regularly provided a reliable indication if the market would trade and probably close on a more positive or negative note on the then following session.

Table II shows the ES (E-MINI S&P 500) performance (since 01/02/1990) on the next session (in this event Monday, July 6) immediately following those sessions where setups S1 to S5 listed below had been triggered in the past.

• Setup S1: the ES (E-MINI S&P 500) closed lower at least -2.75% OR Volume on declining stocks on the NYSE accounted for more than 90% of NYSE Volume ,
• Setup S2: the ES (E-MINI S&P 500) closed lower at least -2.75% OR Volume on declining stocks on the NYSE accounted for more than 90% of NYSE Volume, and the ES (E-MINI S&P 500) opened higher on the next session -in this event Monday July 6-,
  
• Setup S3: the ES (E-MINI S&P 500) closed lower at least -2.75% OR Volume on declining stocks on the NYSE accounted for more than 90% of NYSE Volume, and the ES (E-MINI S&P 500) opened lower on the next session -in this event Monday July 6-.
• Setup S4: the ES (E-MINI S&P 500) closed lower at least -2.75% OR Volume on declining stocks on the NYSE accounted for more than 90% of NYSE Volume, and the ES (E-MINI S&P 500) opened higher at least +0.35% on the next session -in this event Monday July 6-, and finally
• Setup S5: the ES (E-MINI S&P 500) closed lower at least -2.75% OR Volume on declining stocks on the NYSE accounted for more than 90% of NYSE Volume, and the ES (E-MINI S&P 500) opened lower at least -0.35% on the next session -in this event Monday July 6-.

Simply look at the Winning Trades (in %) (probability for a higher close on the then following session), profit factor (on the close) and Intraday Profit Factor, and you might catch on a glimpse that the open makes the difference and will probably be highly indicative for the ES’ (E-MINI S&P 500) performance on Monday’ session.

On any higher open, and especially an open at least +0.35% above Thursday’s close, probabilities and odds and the respective expectancy are significantly tilt in favor a bullish bias during the then following session and on the close, while on any lower open, and specially an open at least -0.35% below Thursday’s close, probabilities and odds and the respective expectancy are significantly tilt in favor of some (significant) follow-through of Thursday’s weakness not only during Monday’s session, but with respect to a probable (significantly) lower close as well.

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Bottom line:

With respect to Monday’s session and based on the respective probabilities and odds concerning those setups which were triggered on Thursday’s close, the outlook concerning the ES’ (E-MINI S&P 500) performance is (slightly) positive (from today’s perspective, not knowing and not taking into account any higher or lower open on Monday’s session).

A real tradable and favorable edge (intraday only) will probably be provided depending on the direction and magnitude of change of the open on Monday’s session.

The edge will probably be on the short side of the market (again) in the event of a lower open and any significant (!) strength/run-up shortly after the open with respect to a subsequently lower low and a potential/probable lower close (a close on a weak note again). The edge will probably be on the long side of the market in the event of a higher open and any significant (!) weakness shortly after the open with respect to a potential rebound and a potential/probable higher close as well.

At least from a historical and statistical point of view (probabilities and odds) it doesn’t seem advisable to trade against the direction of 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: No position in the securities mentioned in this post at time of writing.