Due to the fact that tomorrow (Thursday) will be the last session of the year, and (as promised) in order to prepare for the next posting about developing a ‘market model‘ (financial trading strategy) dealing with those ‘Seasonalities‘, I thought you (my readers) might be interested in what – from a historical and statistical perspective – were (better : ‘are’) the most (un-)favorable sessions (as the consecutive number of the respective business day) of the year.

Table I below shows the SPX‘s (S&P 500) top 100 sessions (since 01/01/1940) for going long on the close, and the respective Cumulative Returns, Profit Factor and Win/Loss Ratio if one would’ve sold on close of the then following session, ordered by [1] Cumulative Returns,  [2] Profit Factor, [3] Win/Loss Ratio. (Example: The most favorable session – with respect to Cumulative Returns – for buying on the close and selling on close of the then following session would’ve been the first business day of the year).

Table II below shows the SPX‘s (S&P 500) most unfavorable 100 sessions (since 01/01/1940) for going long on the close, and the respective Cumulative Returns, Profit Factor and Win/Loss Ratio if one would’ve sold on close of the then following session, ordered by [1] Cumulative Returns,  [2] Profit Factor, [3] Win/Loss Ratio. (Example: The most unfavorable session for buying on the close and selling on close of the then following session would’ve been the 201st business day of the year).

Interestingly 8 out of the top 13 most favorable, and 5 out of the bottom 13 most unfavorable sessions for going long on the close can be found in the last quarter of the year (consecutive number of the respective business day greater than 200), not surprisingly a major part during the month of October (increased volatility).

Table III shows the SPX‘s (S&P 500) performance (since 01/01/1940) going long on the close two business days before the New Year exchange holiday (Setup 1, would be triggered today), going long on close of the business day immediately preceding the New Year exchange holiday (Setup 2), and going long on close of the business day immediately following the New Year exchange holiday (Setup 3, the first session of the new year and historically the most favorable session of the year for going long on the close).

It seems that on the first business day(s) of the year, a lot of people seem to be eager to put year end bonuses, christmas presents and and and into the markets, reflected by a winning percentage in excess of 70%, a profit factor greater than 3, two maximum consecutive losses (out of 68 occurrences) and a tiny drawdown of 3.83%.

In either case one of those ‘Seasonalities‘, where historical occurrences and respective probabilities and odds advise to be positioned on the long side of the market instead of going against all odds, although (and unfortunately) past performance is never a guarantee for future performance.

I wish you a Happy New Year.

Best,

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.

This is a follow-up to my post Memorial Day, the VIX and Other (Un-)Favorable Seasonalities.

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A few weeks ago I posted about the weekday seasonality of the VIX (see Weekday Seasonality of the VIX), and as Adam Warner on the Daily Options Report already pointed out: (cit.) “The *cash* VIX loses some steam ahead of holiday’s/weekends as traders lower bids to account for their weekend/holiday decay.”

Due to one of those findings posted in Memorial Day, the VIX and Other (Un-)Favorable Seasonalities, I thought it would be interesting to check if the same principle (quite probable) -and to what extend- (which was the more interesting question) applies to long weekends with an exchange holiday as well, and (the most appealing question) is there a chance (if any) to capitalize on those ‘VIX Seasonalities’ with a (partly extraordinary) significant bullish bias (concerning the VIX), e.g. by utilizing the CBOE VIX front month future.

I checked for those occurrences since 01/02/1990 where the following setups were triggered, assumed one would have bought the VIX (CBOE S&P 500 Volatility Index) on close of the session immediately preceding the respective exchange holiday for a holding period of 1 day. Therefore concerning Memorial Day one -hypothetically and for statistical purposes only- would have bought the VIX on close of Friday immediately preceding Memorial Day (in this event Friday, May 22, 2009), and closed the trade on close of Tuesday after Memorial Day .

The US exchange holidays are celebrated …

• New Year’s Day - January 1
• Martin Luther King, Jr. Day – observed on the third Monday of January
• Presidents Day - observed on the third Monday of February
• Memorial Day - observed on the last Monday of May
• Independence Day - July 4
• Labor Day - observed on the first Monday in September
• Thanksgiving Day - observed on the fourth Thursday of November
• Christmas Day - December 25

____Left Out____

Good Friday

____No Exchange Holidays____

Columbus Day - observed on the second Monday in October

Veterans Day - November 11

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At first Table I below shows the VIX‘ performance (since 01/02/1990) concerning setups S1 to S5 -side by side- on the next sessions assumed one would have bought the VIX on close of the session immediately preceding the respective exchange holiday. Setups S1 to S5 are defined as

Table I

• Setup S1: New Year’s Day - January 1
• Setup S2: Martin Luther King, Jr. Day – observed on the third Monday of January
• Setup S3: Presidents Day - observed on the third Monday of February
• Setup S4: Memorial Day - observed on the last Monday of May
• Setup S5: Independence Day - July 4

Table II below shows the then current VIX front month future‘s performance (since 04/15/2004) concerning setups S1 to S5 -side by side- on the next sessions assumed one would have bought the then current VIX front month future on close of the session immediately preceding the respective exchange holiday.

Table III below shows the VIX‘ performance (since 01/02/1990) concerning setups S1 to S3 -side by side- on the next sessions assumed one would have bought the VIX on close of the session immediately preceding the respective exchange holiday. Setups S1 to S3 are defined as

• Setup S1: Labor Day - observed on the first Monday in September
• Setup S2: Thanksgiving Day - observed on the fourth Thursday of November
• Setup S3: Christmas Day - December 25
• Setup S4, S5:  VIX

Table IV below shows the then current VIX front month future‘s performance (since 04/15/2004) concerning setups S1 to S3 -side by side- on the next sessions assumed one would have bought the then current VIX front month future on close of the session immediately preceding the respective exchange holiday.

Bottom line: Although the VIX itself shows a consistant bullish pattern on the session after the long weekend -only the magnitude of change on the upside varies-, VIX front month futures show mixed results -from significantly ‘bearish’ (dropping the session following the respective exchange holiday with a significant below-average profit factor, regularly the exchange holidays in the second half of the year) to significantly ‘bullish’ (regularly the exchange holidays in the first half of the year), but results might be purely random due to the very low sample size (5 occurrences only), and heavily depending on the then current (positive or negative) premium of VIX front month futures above or below the *cash* VIX (some kind of a short-term ‘mean-reversion’ tendency). So VIX front month futures do not show a statistical relevant tradable edge in order to capitalize on the VIX’ bullish bias over long weekends.

__________________

A second appealing question is if -and to what extend- VIX front month futures would show a bullish and/or bearish weekday seasonality like the VIX does on Fridays and Mondays, and if there is a chance to capitalize on any such pecularities (if any).

Just as a reminder Table V below shows the VIX‘ performance (since 01/02/1990) concerning setups S1 to S5 -side by side- on the next sessions assumed one would have ‘bought’ the VIX on close of the session immediately preceding the respective weekday. Setups S1 to S5 are defined as

• Setup S1: Monday
• Setup S2: Tuesday
• Setup S3: Wednesday
• Setup S4: Thursday
• Setup S5: Friday

The win/loss ratio on Fridays is tilt in favor of lower (VIX) closes, and significantly tilt in favor of higher closes and significantly above-average magnitude of change on the upside (‘profit factor’) on Mondays.

Table VI below now shows the then current VIX front month future‘s performance (since 04/15/2004) concerning setups S1 to S5 -side by side- on the next sessions assumed one would have bought the then current VIX front month future on close of the session immediately preceding the respective weekday.

Concerning the win/loss ratio none of the weekdays shows any statistically relevant above or below average probability for a higher or lower close, and the notably above-average magnitude of change (‘profit factor’) on Wednesdays and below-average magnitude of change on Tuesdays is mainly impaired by the (slightly) above-average win/loss ratio on Wednesdays, (slightly) below-average win/loss ratio on Tuesdays and the volatility of the VIX front month future itself (the average magnitude of change in VIX front month futures is significantly above the average magnitude of change of the SPX, so a minor deviation in win/loss ratios has an immediate and major impact on the respective profit factor).

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Bottom line:

1. Although the VIX shows a consistant bullish pattern on the session after the long weekend -only the magnitude of change on the upside varies-, and if -and to what extend- this could possibly provide a tradable edge concerning VIX front month futures is more depending on the then current premium of VIX front month futures above or below the *cash* VIX (with some kind of a short-term ‘mean-reversion’ tendency of premiums) and the respective magnitude of change concerning the VIX on the session immediately following an exchange holiday than the fact itself that the VIX regularly closes higher the session after an exchange holiday.

Successful trading,

Frank

Disclaimer: (Net) Long VIX futures at time of writing.

P.s.: WordPress recently implemented a Twitter widget, so 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).

My name is Frank, and due to the fact that this is my 3rd post after I’ve started the blog on Tuesday, March 24, 2009, a few introductory notes.

I have traded as an individual investor for more than 20 years now. I take a statistical approach in combination with historical market data to profit in the US equity and future markets, focused on intraday and swing trading opportunities (regularly using E-mini futures for intraday trading, and -leveraged- US equity index ETFs for swing trading) .

Please accept my apologies for not being a native speaker, and please take respect to the fact that that blog is (and will probably be for the time being) under construction (there is always room for improvement, especially right after the start, and especially focused on getting the tables more self-explanatory; your suggestions -e.g. for different figures and/ore setups- are always more than welcome).

My email: tradingtheodds@fastmail.fm

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WEEKDAY SEASONALITY OF THE VIX^®

The VIX^® (CBOE Volatility Index) is an index that infers 30-day expected (implied) market (S&P 500) volatility from S&P 500 index options (usually in the first and second month, and averaging the weighted prices of puts and calls over a range of strike prices).

For example: the VIX closed at 42.93 on March 24, 2009. This represents an expected annualized (!) volatility of 42.93% over the next 30 days; thus one can infer that market participants expect -with the assumption of a 68% likelihood (one standard deviation)- that the magnitude of the S&P 500′s 30-day return will not exceed 42.93%/SQRT(12 month) = 12.4% over the next 30-days.

Regularly there is an inverse correlation between the VIX and the S&P 500 due to the fact that market participants expect market volatility to be higher on downward movements in the market. But there are periods when this correlation only applies to a much lesser extend or none at all (such a non-confirmation -an ‘uncorrelated behavior’ of the VIX versus the S&P 500-) sometimes gives an early clue and warning that the then current movement in the S&P 500 may not be sustainable.

But a special kind of such an ‘uncorrelated behavior’ of the VIX regularly happens in the Friday to Monday (weekend) time frame, and regularly intraday as well (mean-reversion tendency). The table below shows the VIX′ historical probabilities and odds for a higher and lower open, a higher high and lower low (than the last sessions high/low) and a higher and lower close with respect to the days of the week (since 01/02/1990, VIX on dates before September 22, 2003 compiled by the CBOE to the new methodology).

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(click on image to enlarge)

It is especially notable that

• since 01/02/1990 (long term only, for other time frames the results may significantly deviate), on average (NOT to be mistaken for ‘always’) and at-any-time (and applicable to all days of the week as well) the VIX closes below its opening quotation in the event it has opened higher, and above its opening quotation in the event it has opened lower (intraday mean-reversion tendency of the VIX). So market participants always seem to be overly optimistic or pessimistic concerning (overestimating ) the real-time impact of the S&P 500′ opening direction and magnitude of change on the expected 30-day market volatility (VIX), regularly calming down as the session develops (almost independently from the then developing intraday trend concerning the S&P 500),
• the intraday mean-reversion tendency of the VIX mentioned above is also evident in the respective profit factor. If one would have implemented (theoretically, and for statistical purposes only) a simple mechanical trading system like ‘buy the VIX on open in the event the VIX opens higher; sell the VIX on open in the event the VIX opens lower; close the trade on market close‘, the respective profit factor (sum of all profits divided by the sum of all losses, calculating daily profits and looses by simply subtracting the VIX’ close from the open) would have always (at-any-time, for every day of the week and for both long and short trades as well) been below 1 for a negative expectancy,
• although the at-any-time probabilities for a higher and lower open of the VIX are about even (applicable for Tuesdays, Wednesdays and Thursdays as well), there is a huge historical variance concerning Mondays and Fridays. On Mondays the probability that the VIX will open higher and/or close higher more than triples the respective probability for a lower open and/or a lower close, while on Fridays -but to a lesser extend- the reverse rule applies. It is almost twice as probable that the VIX will open higher on a Monday than on a Friday, and almost thrice as probable that the VIX will open lower on a Friday than on a Monday.

As Adam on the Daily Options Report already pointed out: “The *cash* VIX loses some steam ahead of holiday’s/weekends as traders lower bids to account for their weekend/holiday decay.”

But since 01/03/2007, the intraday mean-reversion tendency of the VIX has been almost completely reversed to a trend-confirming tendency, means the opening direction and magnitude of change of the VIX is regularly at least confirmed if not intensified until the close of the session (additionally evident by looking at the respective profit factor which now makes a -theoretical and for statistical purposes only designed- system ‘buy the VIX on open in the event the VIX opens higher; sell the VIX on open in the event the VIX opens lower; close the trade on market close‘ profitable.

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(click on image to enlarge)

Best regards
Frank

VIX^® is a registered trademark of the Chicago Board Options Exchange

My name is Frank, and due to the fact that this is my 2nd post after I’ve started the blog on Tuesday, March 24, 2009, a few introductory notes.

I have traded as an individual investor for more than 20 years now. I take a statistical approach in combination with historical market data to profit in the US equity and future markets, focused on intraday and swing trading opportunities (regularly using E-mini futures for intraday trading, and -leveraged- US equity index ETFs for swing trading) .

Please accept my apologies for not being a native speaker, and please take respect to the fact that that blog is (and will probably be for the time being) under construction (there is always room for improvement, especially right after the start, and especially focused to get the tables more self-explanatory; your suggestions -e.g. for different figures and/ore setups- are always more than welcome).

My email: tradingtheodds@fastmail.fm

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LOOKING BACK ON TUESDAY’s SESSION

The S&P 500 almost perfectly followed Tuesday’s bottom line which took into account the seasonality on Tuesdays, an RSI(2) reading between 70 and 90 the previous (Monday’s) session and the expected temporary intraday follow-through on Monday’s gains (survey with S&P 500 up 5%+):

The S&P 500 opened lower, gained some intraday strength, traded through Monday’s close (from below to above) and posted a higher high (than Monday’s high) as well, before the market lost all of its gains and closed lower.

BOTTOM LINE FOR WEDNESDAY – MARCH 25, 2009

1. With respect to the weekday seasonality concerning Wednesdays and the current S&P 500 RSI(2) reading of 57.20, there is no (significant) statistical evident edge above or below the respective at-any-time probability and odds concerning the open, any higher high/lower low, the close and/or profit factor.
2. Tuesday’s pattern of the S&P 500 posting a higher high, a higher low, but closing lower shows a notable intraday edge for Wednesday’s session in the event the S&P 500 opens lower (an above-average probability of intraday strength, limited downside potential and a potential higher close as well, see below).

The probabilities based on the weekday seasonality, the BASIC STRATEGY (S&P 500 2-day RSI) and the Survey (see below) favor a lower open on Wednesday (approximately 66%).

FOR WEDNESDAY – MARCH 25, 2009

The S&P 500 2-day Relative Strength Index RSI(2) closed at 57.20 on Tuesday, March 24, 2009.

Based on historical data since 01/03/2007, and with a 2-day RSI between 30 and 70 the previous session, all probabilities for a higher/lower open, magnitude of change, a higher high/lower low and the respective profit factor are more or less comparable to at-any-time probabilities and odds, so there is no statistical evidence of any trading edge on Wednesday concerning the RSI(2) strategy.

From my perspective a remarkable pattern on Tuesday’s session was that fact that the S&P 500 posted a higher high and higher low (than the previous session), but closed lower. I checked all occurrences since 03/01/2007 when the S&P 500 posted a higher high and higher low, but closed lower on the day (see table below, “w/Survey” on the bottom of the table, background color yellow) concerning the S&P 500′ behavior the next session. It is notable that

• concerning those 26 out of 44 occurrences when the S&P 500 opened lower the next session, the probability that the index will close lower as well are significantly below the respective at-any-time probabilities (only 12 out of 26 occurrences), and
• in the event the S&P 500 opens lower, the probability that the index will at least sometimes during the session exceed the lass sessions close (intraday strength) is above the respective at-any-time probability, and
• in the event the S&P 500 opens lower, the average intraday loss between close and open is lower than the respective average at-any-time loss, and the profit factor below the at-any-time respective profit factor (if one would have shorted the open).

To make a long story short: This pattern points to a notably higher than the respective at-any-time probability that in the event the S&P 500 opens lower on Wednesday, the index may not only gain some intraday strength, but more often finally closes up than down on that day, and any downside potential may be limited.

(click on image to enlarge)

WEEKDAY SEASONALITY FOR WEDNESDAY

The table below shows the S&P 500′ historical probabilities and odds for a higher and lower open, a higher high and lower low (than the last sessions high/low) and a higher or lower close with respect to the days of the week (since 01/03/2007).

Since 01/03/2007 regarding Wednesdays there is no (significant) statistical evident edge above or below the respective at-any-time probabilites and odds concerning the open, any higher high/lower low, the close and/or profit factor.

(click on image to enlarge)

Successful trading
Frank

My name is Frank, and due to the fact that this is my first post on the blog, a few introductory notes.

I have traded as an individual investor for more than 20 years now. I take a statistical approach in combination with historical market data to profit in the US equity and future markets, focused on intraday and swing trading opportunities (regularly using E-mini futures for intraday trading, and -leveraged- US equity index ETFs for swing trading) .

Please accept my apologies for not being a native speaker, and please take respect to the fact that that blog is (and will probably be for the time being) under construction (there is always room for improvement, especially right after the start, and especially focused to get the tables more self-explanatory; your suggestions -e.g. for different figures and/ore setups- are always more than welcome).

My email: tradingtheodds@fastmail.fm

BOTTOM LINE FOR TUESDAY – MARCH 24, 2009

1. We may expect an above-average intraday volatility due to the fact that the S&P 500 closed up +5% on Monday (see table “w/Survey” below).
2. If opening lower, the S&P 500 may probably trade up through Monday’s close and exceed Monday’s intraday high of 823.37 sometimes during the session, but might close flat to down (an S&P 500 +5% up session does regularly see some follow-through on such gains the next trading day).
3. Even if the S&P 500 manages to open higher, the index may probably close flat to down.

The probabilities based on the weekday seasonality,the BASIC STRATEGY (S&P 500 2-day RSI) and the Survey (the session following a 5%+ gain in the S&P 500) favor a lower open on Tuesday (approximately 66%).

WEEKDAY SEASONALITY FOR TUESDAY

The table below shows the S&P 500′ historical probabilities and odds for a higher and lower open, a higher high and lower low (than the last sessions high/low) and a higher or lower close with respect to the days of the week (since 01/03/2007).

Since 01/03/2007 Tuesdays have been the strongest days of all weekdays, with on average and as a total (sum of all profits when buying the open) the biggest intraday gains (close versus open) of all weekdays in the event the S&P 500 opened higher, and the second smallest gains (going short on open) on the short side in the event the S&P 500 opened lower (close versus open), the latter pointing to a -on average- limited downside potential on Tuesdays in general.

(click on image to enlarge)

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BASIC STRATEGY FOR TUESDAY – MARCH 24, 2009

The S&P 500 2-day Relative Strength Index RSI(2) closed at 84.84 on Monday, March 23, 2009.

Based on historical data since 01/03/2007, and with a 2-day RSI between 70 and 90 the previous session, the S&P 500 closed regularly flat to down the next session, with on average a close below the open independently if the S&P 500 opened up (on average a close -0.06% below the open) or down (on average a close -0.34% below the open). But in the event the S&P 500 opened up, the intraday high almost always exceeded the last sessions high, so we might expect to see the S&P 500 trading above 823.37 sometimes during Tuesday’s session.

Due to the fact that the S&P 500 index closed up more than 5% on Monday, I checked all (8) occurrences since 01/03/2007 when the S&P 500 closed up 5%+ (see table below, last column “w/Survey“) concerning the S&P 500′ behavior the next session.

Almost all of these sessions saw above-average intraday swings and in every case but one a (significantly) higher high (table row ‘Higher High’ = percentage change of today’s high versus the last sessions high), so at least intraday we might expect some follow-through on Monday’s gains.

(click on image to enlarge)

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Successful trading
Frank