But although since 01/01/2009 the SPY always posted a higher close (than the trigger day’s close, in this event last Monday’s close) 4 and 5 sessions later, it was the first occurrence (since 01/01/2009) that the SPY was trading below the trigger day’s close 4 (and probably 5 as well) sessions later (see stats below), which could be an early indication that upside momentum is waning and and the market could’ve reached a short- or intermedium term top.

On Friday (which coincidenced with a session immediately preceding a long weekend, the release of the Consumer Price Index and Option Expiration Friday), the SPY lost -1.12% on the close which triggered another interesting setup.

Table I below shows the SPY‘ historical performance (since 01/01/1990) on the then following session after the SPY had lost at least -1.0%

• Setup 1: on any session,
• Setup 2: on the close of a session immediately preceding an exchange holiday during the Tuesday to Thursday timeframe (means a one-day gap between two sessions),
• Setup 3: on the close of a session immediately preceding a regular weekend (means a two-day gap between two sessions),
• Setup 4: on the close of a session immediately preceding a long weekend (an exchange holiday on a Friday or Monday, means a three or more -day gap between two sessions).

Interesting to note that while the market in general shows a statistically significant (the respective t-score exceeds the +1.645 mark for statistical significance, means there is a low probability that this positive effect occured by pure chance only) short-term mean-reversion tendency (especially with respect to those occurrences immediately preceding an exchange holiday during the Tuesday to Thursday timeframe, with 5 out of 5 higher closes), the opposite applies to those occurrences which fell on a session immediately preceding a long weekend (5 higher and 14 lower closes the next session).

With the setup’s Distribution of Returns at 22.69% (means one half of the setup’s returns fell in the lowest quartile of the SPY‘s at-any-time returns), and Top 10% Losers (disproportionately high) at 31.58% (means 31.58% = 6 occurrences) falling into the SPY‘s worst 10% performing sessions, this setups shows a significantly negative tendency on the then following session (in this event on Tuesday, January 19), although 19 occurrences only is something to be careful to read anything statistically significant into it.

Table II below now shows the SPY‘ historical performance (since 01/01/1990) over the course of the then following 1 to 5 sessions when the SPY closed lower at least -1.0% on a session immediately preceding a long weekend (setup 4).

Looking up to five sessions ahead, there is a slight improvement only in comparison to the negative tendency on the then following session. With 58.89% the respective probability for at least one higher close (than the trigger day’s close) over the course of the then following five sessions significantly undercuts the at-any-time probability of 79.62% for at least one higher close over the course of the then following five sessions.

Table III below now shows the SPY‘ historical performance (since 01/01/1990) over the course of the then following 1 to 5 sessions when the SPY closed lower at least -1.0% on Option Expiration Friday.

And even when the SPY had lost at least -1.0% on the close of Option Expiration Friday (unfortunately again a small sample size only), historical probabilities and odds show a negative tendency over the course of the then following five sessions (although not statistically significant, but neither probabilities for a higher close nor the median trade and/or Distribution of Returns favor the long side in any way) .

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And last but not least some intraday stats (Table IV) concerning those historical occurrences (since 01/01/1990) where the SPY closed lower at least -1.0% on Option Expiration Friday or lower at least -1.0% on a session immediately preceding a long weekend.

It is remarkable that on the then following session the SPY

• was trading at a lower level (than the previous session’s close) at the end of the first hour on six out of every ten occurrences,
• managed a higher high than the previous session’s high on only 1 out of every 5 occurrences (19.15%) the next day, significantly lower (to say the least) than the at-any-time probability for a higher high of 51.93%,
• posted a higher low on two out of every three occurrences  (29.35%), significantly lower than the at-any-time probability for a higher low of 52.66%,
• closed above the previous session’s high on only one out of every 10 occurrences (10.64%), significantly lower than the at-any-time probability for a close above the previous session’s high of 29.35%, and finally
• the Distribution of Returns (the percentage-rank of the medium trade) and Top 10% Losers (the percentage-wise number of occurrences falling into the bottom one-tenth of the worst performing at-any-time sessions) on almost all intraday performance stats show a statistically signifcant tendency for a temporary follow-through of Friday’s weakness.

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Bottom line: With some serious weakness (a loss of at least -1.0%) on a session immediately preceding a long weekend and/or on Option Expiration Friday, and taking into account that the SPY broke it’s recent streak of 10 consecutive higher closes (all since 01/01/2009) four and five sessions after the he SPY‘s 2-day RSI closed above 96 (a so-called ‘overbought‘ market) and Wilder’s 2-day DX (Directional Movement Index) closed above 95 (indicating a strong underlying uptrend), historical probabilities and odds are (significantly) tilt in favor of some follow-through of Friday’s weakness during the (shortened) next week. A short-term pullback to the upside on Monday’s/Tuesday’s GLOBEX and/or right at the start of Tuesday’s regular session might provide a favorable short-term opportunity on the short side of the market (2 to 3 session timeframe).

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.

The post had to be updated due to a data issue – the dates shown in setup S5 were the FOMC announcement days, not the pre-FOMC announcement dates – (thanks to a reader), but the positive outlook with respect to Tuesday’s close will not change due to the fact that the ‘real’ pre-FOMC announcement days show a significantly above-average positive tendency on the close as well. I’m sorry for the necessary update.

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It seems the best bears can hope for these days is a temporary setback of a couple of index points sometime during the session (and a flat, at the utmost a slightly lower close).

An otherwise reliable sell signal (the S&P 500 closed higher on Triple Witching Friday) – 18 lower closes out of the last 22 occurrences – was more or less flattened by a recently bullish setup (S&P 500 TRIN closed above 1.50 in regularly negative territory despite a higher close for the S&P 500) – 12 higher closes out of the last 13 occurrences since 07/14/2009 – (see my posting Trading the Odds on Monday – September 21, 2009), but at least it formally complied to historical probabilities and odds and will show 19 out of 23 lower closes the next time the Triple Witching Friday setup will be triggered.

On Monday’s session the ES E-MINI S&P 500 opened lower -0.57%, posted an intraday low of -0.85% below and an intraday high of +0.16% above Friday’s close, and finally closed almost unchanged -0.07% on the day, while the Nasdaq 100 closed up +0.37% (S&P 500 -0.37%, DJ Ind. -0.42%, Russel 2000 -0.31%, SOX Philadelphia Semiconductor Index -0.02%, BKX Philadelphia Bank Index -0.48%).

Market breadth in S&P 500 stocks was mixed (but showed a positive divergence, see setup S4 below), with S&P 500 Advancing Issues/Declining Issues at 0.42 and Advancing Volume/Declining Volume at 1.00 (S&P 500 TRIN / Arms Index at 0.42). Block trades with an up tick (almost) matched block trades with a down tick, and volume on block trades with an up tick matched volume on block trades with a down tick as well on the second consecutive session (the difference falls below +/- 2%).

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Notably on Monday’s session were the facts that

• Setup S1: the ES E-MINI S&P 500 posted a lower close on the 3rd consecutive session,
• Setup S2: the ES E-MINI S&P 500 closed almost unchanged on the 3rd consecutive session (within a +/- 0.25% range),
• Setup S3: the ES E-MINI S&P 500 closed almost unchanged +/- 0.50% on the 3rd consecutive session while trading at or near a 50-day high (max. -2.5% below),
• Setup S4: S&P 500 TRIN closed below 0.50 (in regularly positive territory) despite a lower close for the S&P 500, and
• Setup S5: the next session (September 22) will be an pre-FOMC announcement day.

Table I shows the ES (E-MINI S&P 500) performance (since 01/01/1990) on the next session (in this event Tuesday, September 22) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

(Almost) all of those setups listed above are agreeing concerning their at least slightly positive outlook on the then following session, and especially setup S1 and S5 provide a statistically relevant edge on the long side of the market (the associated t-score is close to or exceeds the +1.645 mark for statistical significance).

If you’d like to take a deeper dive into trading the markets based on statistical analysis, take a look at David Varadi’s blog CSS Analytics (highly recommended).

Table II shows the ES E-MINI S&P 500 intraday performance (since 01/01/1990) concerning the open, the first hour of the session, the last hour compared to the first hour (means the ES‘ performance between the end of the first hour and the start of the last hour of the session), the last hour of the session and the close (in chronological order) on those sessions (in this event Tuesday, September 22) where S5 (the next session will be an pre-FOMC announcement day) had been triggered in the past.

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Bottom line:

At least based on historical probabilities and odds and the market’s regular performance on those sessions after any of setups S1 to S5 had been triggered on close of the previous trading day, the outlook concerning the ES E-MINI S&P 500 performance on Tuesday, September 22 is positive.

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).

Disclaimer: No position in the securities mentioned in this post at time of writing (but short volatility).

Despite the fact that on Thursday’s session the market rejected to go down although – from a statistical and historical perspective – it was supposed to do (see my posting Trading the Odds on Thursday – August 20, 2009), at least a red flag (for going or holding on to a short sell) was provided early in the session due to an exceptional strong BKX Banking Index which never showed any kind of weakness as a prerequisite for a sustainable move on the downside.

So I decided to cover my shorts entered into during the first hour of the session (see my respective Twitter Updates) and did not think about going short again (until the close) due to the fact that with a BKX Banking Index trading higher more than +2.0% while the ES (E-MINI S&P 500) was NOT up more than +1.0% going into the final hour of the session, chances were lopsided in favor of a positive tendency during the final hour of the session (ES E-MINI S&P 500 trading higher on 68 and lower on 23 occurrences only, see my Twitter Update).

For the records: It was the second occurrence only since 01/01/1990 only that the ES (E-MINI S&P 500) went into option expiration Friday on the heels of three consecutive sessions with a gain of at least +0.75% on the close, but luckily is was the 11th occurrence (which provided a favorable overnight opportunity on the short side, see my Twitter Update on the close) where the ES (E-MINI S&P 500) went into option expiration Friday after two consecutive sessions with a gain of at least +0.75% on the close (thereof 8 with a lower open on option expiration Friday, only 2 with a higher open, +0.20% and +0.68% respectively).

The ES (E-MINI S&P 500) opened lower -0.08% (which almost marked the low for the day), traded more or less flat during the first hour of the session, but contrary to what probabilties and odds supposed the market the market went then straight up and posted an intraday high of +1.08% above Wednesday’s close, and finally closed higher +0.78% on the day, while the Nasdaq 100 closed up +1.10% (S&P 500 +1.09%, DJ Ind. +0.76%, Russel 2000 +1.25%, SOX Philadelphia Semiconductor Index +1.02%, BKX Philadelphia Bank Index +2.87%).

Market breadth on the NYSE and NASDAQ was relatively strong (but not pertinent to the market’s positive performance, see setup S5 below), with NYSE Advancing Issues/Declining Issues at 2.75 and Advancing Volume/Declining Volume at 5.39 (NYSE TRIN / Arms Index at 0.51), and NASDAQ Advancing Issues/Declining Issues at 1.85 and NASDAQ Advancing Volume/Declining Volume at 2.45 (NASDAQ TRIN at 0.76). NYSE Advancing Volume accounted for 83.66% of NYSE volume.

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Notably on Thursday’s session were the facts that

• Setup S1: the ES (E-MINI S&P 500) posted the 3rd consecutive session with a gain of at least +0.75% on the close,
• Setup S2: the ES (E-MINI S&P 500) posted the 3rd consecutive session with a higher high (than the previous session’s high), a close above the open and a higher close as well,
• Setup S3: the next session (Friday’s session) will be option expiration,
• Setup S4: the ES (E-MINI S&P 500) posted the 2nd consecutive session with a gain of at least +0.75% on the close on those sessions immediately preceding option expiration,
• Setup S5: more than 80% of the stocks included in the S&P 500 penetrated their previous session’s high (which marked a 10-day high).

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 had been triggered in the past. Table I shows the ES (E-MINI S&P 500) performance (since 01/01/1990) on the next session (in this event Friday, August 21) immediately following those sessions where setups S1 to S5 listed above had been triggered in the past.

Almost all setups (except setup S4 which shows a tendency for a higher close, but this is the setup which provided the favorable opportunity on the short side with respect to a lower open) are agreeing concerning their negative bias on the then following session, showing a (partly significantly) below-average probability for a higher close, a profit factor which (at least slightly) undercuts the at-any-time profit factor (sum of all winning trades divided by the sum of all losing trades), and an associated negative t-score close to or below (setup S1) the -1.645 mark for statistical significance (means there is a low probability only that the respective ES’ under-performance on a session after those setups had been triggered on close of the previous trading day in comparison to the at-any-time/average market’s performance and the negative performance at all occured by chance only).

Table II shows the ES (E-MINI S&P 500) intraday performance (since 01/01/1990) concerning the open, the first hour compared to the previous session’s close, the last hour compared to the first hour, the last hour of the session and the close (in chronological order) on those sessions (in this event Friday, August 21) where any of setups S1 to S5 (S1 or S2 or S3 or S4 or S5) had been triggered on close of the previous trading day, indicating the ‘overall‘ (including best case / worst case) bullish or bearish tendency on the then following session.

With respect to intraday stats (open/first hour vs. previous session’s close/last hour vs. first hour/last hour/close/, in chronological order) on those sessions (in this event Friday, August 21) where any of setups S1 to S5 had been triggered on close of the previous trading day, it is especially remarkable that the ES (E-MINI S&P 500)

• shows an above-average tendency for a lower open,
• shows a significantly above-average tendency (all with an associated t-score exceeding the -1.645 mark for statistical significance) for trading lower after the first hour of the session (in comparison to the previous session’s close), for trading lower between the first and the last hour of the session, and for a lower close as well (due to the significantly below-average profit factor, not with respect to the probability for a higher/lower close which is almost even)
• shows slightly above-average odds (and a t-score close to the -1.645 mark for statistical significance) for a lower close.

There is a small but: The negative tendency is regularly not based on significantly below-average probabilities for a lower quote at the open, …, close, but mainly based on the below-average odds, means the expected negative payoff (probabilities in combination with the average -regularly negative- trade).

A favorable overnight opportunity on the short side of the market was provided at the close of Thursday’s session due to the fact that when the ES (E-MINI S&P 500) went into option expiration Friday after two consecutive sessions with a gain of at least +0.75% on the close (10 occurrences since 01/01/1990), the ES (E-MINI S&P 500) opened lower on 8 occurrences on option expiration Friday, and up on 2 occurrences only.

In addition, when the ES (E-MINI S&P 500) had posted three consecutive sessions with a gain of at least +0.75% on the close in the past, it opened lower on 10 out of the last 11 occurrences the next day. So with respect to historical probabilities and odds, this setup presented a highly favorable opportunity on the short side (Disclaimer: I already covered my shorts overnight at 997.75, with ES E-MINI S&P 500 trading lower -7 from yesterday’s close, but I’ll probably re-enter shorts if the ES E-MINI S&P 500 would be able to recoup a major part of it’s pre-opening losses before the open).

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Bottom line:

Based on historical probabilities and odds and the market’s regular performance on those sessions after any of setups S1 to S5 had been triggered on close of the previous trading day, the outlook concerning the ES’ (E-MINI S&P 500) performance on Friday, August 21 is negative right from the start of the session.

Therefore a favorable opportunity on the short side of the market may be provided in the event of any significant strength before, on or shortly after the open (from my current perspective at time of writing I don’t see any favorable opportunity on the long side of the market), or if the market would be able to recoup some or all of it’s overnight losses (trading -7.45 at time of writing, 00:40am CET).

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 (shorts already covered overnight).

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.

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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.

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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.

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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.

At least the market provided two favorable short-term trading opportunities on today’s session, the first one (as suggested in today’s forecast) buying on weakness during the first part of the session, and the second one on selling into the strength during the second part of the session based on the negative breadth stats (see my Twitter updates and the explanation below).

On Wednesday’s session the SPY (S&P 500 ETF) opened almost unchanged (-0.04%) , posted an intraday high +0.75% above Tuesday’s close (for at least some of the supposed intraday strength which was otherwise a regular pattern during those sessions in the past which fulfilled the respective setups triggered on Tuesday’s close), posted an intraday low -0.88% below Tuesday’s close and finally closed slightly lower -0.10% on the day. That Wednesday’s intraday gains were not sustainable (I posted several respective Twitter updates during the session, see the Twitter Update box on the right) was relatively easy to spot due to the fact that NYSE Advancing Issues/Declining Issues never posted a reading above 1, and NYSE Advancing Volume/Declining Volume never made it above 0.75 during the session for a significant negative divergence. At some time during the session the $SPX was up while NYSE Advancing Issues/Declining Issues were below 0.70 and NYSE Advancing Volume/Declining Volume below 0.50 at the same time, which -assumed everything unchanged- would have marked the first (!) session since 02/01/1990 where the $SPX would’ve closed up which such negative breadth figures.

At the close market breadth was lopsided on the downside again with NYSE Advancing Issues/Declining Issues at 0.73, and NYSE Advancing Volume/Declining Volume at 0.45 (NYSE TRIN at 1.61), which marked the fourth consecutive session where NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume closed below 1.

Additionally the S&P 500 out-performed the S&P 500 Equal Weighted Index ($SPXEW) the 5th day in a row, the 4th day by a relatively wide margin of at least +0.3%. The S&P Equal Weight Index is the equal-weighted version of the S&P 500. The index has the same constituents as the capitalization weighted S&P 500, but each company in the SPXEW is allocated a fixed weight 0f 0.20%, rebalanced quarterly. The S&P Equal Weight Index measures the performance of the same 500 companies, in equal weights. See AMEX. In other words: The heavy capitalized stocks in the S&P 500 -usually over-weighted in institutional portfolios- out-performed the less capitalized stocks in the index by a more than usual wide margin.

I checked for the following setups which were triggered on Wednesday’s close:

• NYSE Advancing Issues/Declining Issues < 0.75 and NYSE Advancing Volume/Declining Volume < 0.5 on a day where the S&P 500 did NOT close lower than -0.25% (Setup S1),
• NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume both closed below 1 on four consecutive sessions (Setup S2),
• the S&P 500 closed lower three days in a row, (Setup S3),
• the S&P 500 out-performed the S&P 500 Equal Weighted Index ($SPXEW) on five consecutive sessions, thereof the most recent 4 sesssions by at least +0.3% (Setup S4), and
• Setups S2 and S3 combinded (Setup S5).

Table I shows the ES‘ (S&P 500 E-MINI) performance (since 01/02/1990) on the next session (in this event Thursday, June 18) immediately following those sessions where setups S1 to S5 listed above had been triggered.

Except setup S1 -which by the way would’ve shown a significant more negative picture on the then following session if I had checked for those occurrences where the S&P 500 would’ve closed up and both NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume would’ve closed below 0.75-, Setups S2 to S5 are all agreeing concerning their positive outlook on the then following session. Especially setup S5 (‘NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume both closed below 1 on four consecutive sessions AND the S&P 500 closed lower three days in a row -the most recent ones-‘) shows a significant tendency for a higher close the then following session (on 2 out of 3 occurrences), and the profit factor (expectancy, pay-off) approximately doubles the respective at-any-time profit factor.

BUT: The overall positive outlook on the then following session applies to the 20-year time frame since 01/02/1990 only, and unfortunately (for the bulls) the most recent history shows a much different picture at least concerning the close and the close versus open on the then following session.

Table II now shows the ES‘ (S&P 500 E-MINI) intraday performance (since 01/02/1990) concerning the open, high, low, close (compared to the previous’s session close) and close versus open on the next session (in this event Thursday, June 18) immediately following those 95 sessions where setup S5 had been triggered (‘NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume both closed below 1 on four consecutive sessions AND the S&P 500 closed lower three days in a row -the most recent ones-‘):

If I’d take into account those occurrences since 2008 (beginning of the current bear market) only the respective stats would look like:

Concerning setup’s S5 (‘NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume both closed below 1 on four consecutive sessions AND the S&P 500 closed lower three days in a row -the most recent ones-‘) intraday stats on the then following session it is especially remarkable that

• chances that the ES (S&P 500 E-MINI) will open higher significantly exceed the at-any-time probabilities for a higher open on the then following session concerning both time frames,
  
• the profit factor on the high (means the potential magnitude of change on the intraday high compared to the previous session’s close) significantly exceeds the respective at-any-time profit factor, which is with a reading of 308 compared to an at-any-time profit factor of 9.22 (since 2008) more than a british understatement (the average -not the maximum- high on the then following session was 3.95% in the past concerning those 10 sessions which fulfilled the setup mentioned above),
• the S&P 500 shows a significant tedency for some wide swings above and below the previous session’s close on the then following sessions (the average -not the maximum- losing trade on the low is -3.68% on the then following session), and finally
• recently (since 2008) the ES (S&P 500 E-MINI) shows a significant tendency for a lower close (on 7 out of 10 occurrences) and some weakness concerning the close versus open as well (below-average profit factor) .

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Bottom line:

With respect to Thursday’s session and based on the respective probabilities and odds concerning those setups which were triggered on Wednesday’s close, the outlook is short-term (next session only) positive with respect to a potential intraday high on Thursday’s session significantly above Tuesday’s close, and any significant (!) weakness on or shortly after the open will probably provide a short-term buying opportunity (but with respect to a significant higher quote at some time during the session only).

But Thursday’s session could probably mirror Wednesday’s session with respect to historical probabilities and odds that any intraday strength might not be sustainable again, and the market could very well again close on a (very) weak note especially with respect to the fact that the outlook for the remainder of the week is/was NOT positive (option expiration with a down day on Monday, see my posting Option Expiration Weeks and (Big Down Days on) Mondays).

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.

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This week is option expiration week, and a reader raised the question if -and to what extend- this might provide a tradable edge (if any) and what will be my forecast for the remainder of the week.

Due to the fact that we started into the week with a big down day on Monday (the SPY closed lower -2.28%), I thought it would be interesting to additionally check for those occurrences when the S&P 500 started into the option expiration week with a lower close at least -2.0% than the previous session’s close (regularly the Friday before).

I therefore checked for the following setups which were triggered on Monday’s close (strategy: ‘buy on close; sell on close 4 days later, means on close of (option expiration) Friday‘):

• Monday during (at the start of) option expiration week (Setup S1),
• Monday at the start of a week which is NOT option expiration week (means any other Monday than those concerning setup S1) (Setup S2),
• Weekday = Monday (all Mondays, either S1 OR S2) (Setup S3),
• Monday during (at the start of) option expiration week, and the S&P 500 closed lower at least -2.0% (Setup S4), and
• Monday at the start of a week which is NOT option expiration week, and the S&P 500 closed lower at least -2.0% (Setup S5).

Table I shows the ES‘ (S&P 500 E-MINI) performance (since 01/02/1990) over the course of the next four sessions (in this event Friday, June 19) immediately following those sessions where setups S1 to S5 listed above had been triggered.

It is especially remarkable that

• concerning the chances that the ES (S&P 500 E-MINI) will close high/lower on option expiration as well as regarding the respective profit factor (expectancy, pay-off), buying on close of a (any) Monday during option expiration week doesn’t privide any (significant) edge, and probabilities and odds almost match the respective at-any-time probabilties and odds to the point,
• the latter applies to thoses Mondays at the start of a week which is NOT option expiration week as well (although with respect to the probabilities and odds for a higher/lower close on the then following Friday they slightly undercut the respective probabilties and odds of those Mondays during option expiration week), but
• there is a significant deviation (although sample sizes are way too small to read any statistically relevant into it) concerning both setups when the S&P 500 closed lower at -2.0% on the respective Monday: Buying on close of a Monday at the start of a week which is NOT option expiration week provides a significant edge on the long side concerning both the probability for a higher close on the then following Friday and profit factor as well (the profit factor triples the respective at-any-time profit factor), while selling short on close of a Monday at the start of a week during option expiration provides a significant edge on the short side concerning both the probability for a lower close on option expiration Friday and profit factor as well.

Table II now shows the ES‘ (S&P 500 E-MINI) performance (since 01/02/1990) over the course of the next four sessions (in this event Friday, June 19) immediately following those 9 sessions where setup S4 (‘Monday during (at the start of) option expiration week, and the S&P 500 closed lower at least -2.0%‘) had been triggered.

Concerning setup’ S4 (‘‘Monday during (at the start of) option expiration week, and the S&P 500 closed lower at least -2.0%‘ ‘) it is especially remarkable that

• chances (7 out of 9 occurrences) that the ES (S&P 500 E-MINI) will close higher and the respective profit factor (14.44) on the then following session (in this event Tuesday, June 16, 2009) significantly exceed the at-any-time probability and profit factor for a higher close the then following session, but
• concerning the remainder of the week the outlook is bleak (to say the least), and although chances for a higher/lower close on option expiration Friday are more or less even, the profit factor significantly undercuts the respective at-any-time profit factor for a higher close 4 sessions later.
  

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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 (see my post Trading the Odds on Tuesday – June 16, 2009), the outlook is short-term (Tuesday’s session only) positive, and any weakness on or shortly after the open will probably provide a short-term buying opportunity especially with respect to a potential intraday high on Tuesday’s session significantly above Monday’s close, but this will apply -although to a lesser extent (profit factor)- to a potential higher close and close versus open as well.

BUT with respect to the remainder of the week, it seems highly probable that not only a sell signal concerning Wednesday’s session will be triggered at today’s (Tuesday’s) close -especially in the event if we get a higher close on a relatively weak breadth-, but the edge will regularly be on the short side of the market.  So at least concerning those setups listed above is seems wise to not overstay one’s welcome on the long side of the market beyond Tuesday’s session.

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: Long DAX (German Stock Index) and short volatility.