Trading the Odds

A statistical approach to profit in the US equity markets, trading the markets like professional card counters are playing Blackjack or expert poker players are playing Poker.

Trading the Odds on Monday – June 15, 2009

WE031672-klein

Friday’s session looked like a playbook example concerning -form a historical and statictical perspective- the most probable outcome based on those setups which were trigged on close of Thursday’s session: ‘the SPY gave back at least -1.0% of its’s intraday gains until the close on two consecutive sessions and the SPY posted an intraday high at least +1.50% above the previous session’s close, but gave back at least -1.25% of its’s gains until the close to finally close near the low (max. +0.25% above the low) (see my post Trading the Odds on Friday – June 12, 2009):

The S&P 500 opened lower -0.15%, posted an intraday low -0.98% below Thursday’s close for the supposed weakness (based on probabilities and odds concerning the latter setup mentioned above) early in the session, but recouped all of it’s losses again to finally close higher +0.14% on the day (based on probabilities and odds concerning the former setup mentioned above), in compliance with Friday’s forecast (cit. ‘Therefore any (significant) weakness on or shortly after the open may provide a favorable buying opportunity especially with respect to the fact that setup S2 shows a significant tendency for an upside reversal (close – open) on any (probable) intraday weakness‘).

The S&P 500 closed higher +0.65% for the week, and although this might be nothing to write home about, it finally fulfilled the bullish ‘NYSE divergence‘ setup which was triggered on last Friday’s close (5 consecutive sessions with a NYSE TRIN above 1), where it (correctly) seemed that the path of least resistance for the last week would still be be up, not down (see my post Trading the Odds on Monday – June 8, 2009).

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On Friday’s session market breadth was notably negative with NYSE Advancing Issues/Declining Issues at 0.84, and NYSE Advancing Volume/Declining Volume at 0.85, both significantly below 1 for a significant negative divergence (NYSE TRIN at 1.00). Notably as well was the fact as well that  SPY volume came in at it’s lowest level since May 22, 2009, the second day in a row that the S&P 500 and SPY closed up while SPY volume contracted. Additionally new NYSE 52-week highs came in lower the second day in a row as well (despite the fact that the S&P 500 closed higher the second day in a row). And last but not least speculative interest as the ratio of Nasdaq Total Volume / NYSE Total Volume close above 2.4, the second highest reading since 01/02/1990 (and the 7th consecutive session with a ratio of Nasdaq Total Volume / NYSE Total Volume above 1.80).

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

  • the S&P 500 closed up while NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume both closed below 0.9 (in negative terrritory for a negative divergence) on the same day (Setup S1),
  • the S&P 500 closed up on two consecutive sessions while new NYSE 52-week highs contracted on both sessions (Setup S2),
  • the S&P 500 closed up on two consecutive sessions while SPY volume contracted on both sessions (Setup S3),
  • SPY volume came in at least 20% below the previous session’s volume while speculative interest as the ratio of Nasdaq Total Volume / NYSE Total Volume closed above 1.8 on the same day (Setup S4), and
  • speculative interest as the ratio of Nasdaq Total Volume / NYSE Total Volume closed above 1.80 on at least 4 consecutive sessions (Setup S5).

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

20090612-ES-S

Though sample sizes are a bit too small to be statistically relevant, setups S1 to S5 are all agreeing concerning their negative outlook on the then following session. Although chances for a higher/lower close are only slightly tilt in favor of a lower close, the at-any-time profit factor of 1.07 is remarkably undercut by almost all setups listed above, means the magnitude of change on a potential (probable) lower close regularly significantly exceeds the magnitude of change on a potential higher close (limited upside versus significant downside potential).

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 Monday, June 15) immediately following those 93 sessions where the S&P 500 closed up while NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume both closed below 0.9 (setup S1).

20090612-ES-S1i

Concerning setup’s S1 (‘the S&P 500 closed up while NYSE Advancing Issues/Declining Issues and NYSE Advancing Volume/Declining Volume both closed below 0.9‘) intraday stats the then following session it is especially remarkable that

  • with respect to the last 10 occurrences the ES (S&P 500 E-MINI) almost always opened lower with a (regularly significant) gap down the then following session (on 9 out of the last 10 occurrences),
  • the profit factor on the high (means the potential magnitude of change on the intraday high compared to the previous session’s close) significantly undercuts the respective at-any-time profit factor, means upside potential (if any) is regularly limited the then following session,
  • the profit factor on the low (means the potential magnitude of change on the intraday low compared to the previous session’s close) significantly undercuts the respective at-any-time profit factor as well, means downside potential regularly (significantly) exceeds the respective at-any-time magnitude of change on the low the then following session, and finally
  • concerning the last 10 occurrences the ES (S&P 500 E-MINI) regularly closed lower the than following session (on 9 out of the last 10 occurrences), and the profit factor on the close (means the potential magnitude of change on the close compared to the previous session’s close) significantly undercuts the respective at-any-time profit factor (applies to the odds concerning a potential close above/below the open as well).

________________

I thought it would be interesting as well to check for those occurrences and the Nasdaq 100′ performance over the course of the then following 5 sessions (1 week) where speculative interest was running at a similar level like today.

Table III shows the NDX (Nasdaq 100) performance (since 01/02/1990) over the course of the then following five sessions immediately following those 22 occurrences where speculative interest as the ratio of Nasdaq Total Volume / NYSE Total Volume closed above 1.80 on at least 4 consecutive sessions (setup S5).

20090612-NDX-S5

Although probabilities and odds (profit factor/pay-off) are already significantly tilt in favor of lower closes and significantly downside potential over the course of the then following 5 sessions, the stats are still positively distorted due to the fact that all occurrences are included where the ratio closed above 1.80 on at least 4 consecutive sessions, not only the last occurrence of the respective sequence of those occurrences where the ratio closed above 1.8 on 5 consecutive sessions ore more (e.g. between 11/28/2000 and 12/01/2000 4 consecutive occurrences are included -the ratio closed above 1.80 on a total of 7 consecutive sessions- with a significant gain over the course of the the following 5 sessions on all of those 4 occurrences).

But some cautious is warranted: As it was the fact between 11/28/2000 and 12/01/2000, we could very well get a -from my perspective- last (significant) exponentially run-up before the excessive speculative interest will probably take its toll. I think Monday’s session will probably be indicative for the NDX’ performance over the course of the next week. If the NDX refuses to go down although -from a statistical perspective- it ‘should’ (as the SPX did over the course of the last couple of sessions), chances are good the we may get some accelaration on the up-side again.

________________________________

Bottom line:

With respect to Monday’s session and based on the respective probabilities and odds concerning those setups which were triggered on Friday’s close, the outlook is negative, and I’d be hesitant concerning any ‘buying the dip’ approach on Monday. Instead it seems that any strength on or shortly after the open might provide a favorable opportunity on the short side of the market due to the fact that any upside potential seems to be limited (at least) and the market shows a significant tendency for some (significant) weakness during the session and on the close.

Additionally the high running speculative interest doesn’t bode well for the NDX performance over the course of the then following 5 sessions, but the NDX performance on Monday’s session will probably be indicative for the major market indexes’ performance over the course of the following week (breaking lower in compliance with historical probabilities and odds concerning the high running speculative interest, or a probably last run-up before the high running speculative interest will probably take its toll). So on Monday watch the NDX’ intraday performance closely, and if the NDX under-performs the SPX again while the SPX shows some strength, this might provide the favorable opportunity on the short side and confirmation regarding the negative outlook for Monday’s session (and the negative outlook concerning the NDX’ performance over the next couple of sessions as well).

Successful trading,

Frank

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).

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

Filed under: Daily Update, , , , ,

Trading the Odds on Friday – June 12, 2009

WE031672-klein

Although the S&P 500 couldn’t hold onto its intraday gains of +1.82% above Wednesday’s close and again reversed course (as it was the case on Wednesday’s sessions), the index closed up +0.61% on the day, in compliance with the positive bias which was triggered on Wednesday’s close based on the setup ‘the S&P 500 closed within a +/- 0.35% four days in a row AND the S&P 500 posted a higher high on two consecutive sessions, but closed almost flat (+/- 0.25%) in comparison to the close three sessions ago ‘ (see my post Trading the Odds on Thursday – June 11, 2009).

That the S&P 500 would possibly get into trouble during the session was noticeable due to the fact that the $SOX Semiconductor Index as well as the Nasdaq 100 (significantly) under-performed the S&P 500, and when the Nasdaq 100 started to post lower lows intraday it was time to took some money of the table and close any potential index long positions for the day (see my respective Twitter update at 01:35 PM CET).

Market breadth was positive with NYSE Advancing Issues/Declining Issues at 1.59, and NYSE Advancing Volume/Declining Volume at 1.91 (for a NYSE TRIN at 0.83 in positive territory). Notably was the fact that although the S&P 500 posted a higher high (above the previous session’s high) the third day in a row, and a high above the previous session’s close of at least +1.0% the second day in a row, new NYSE 52-week Highs came in lower on Thursday’s session (16) than on Wednesday’s session (18).

Notably as well was the fact as well that the SPY posted ‘6 Highs’ today (higher open, higher high, higher low and a higher close than the previous session’s open/high/low/close, a close above the open AND a low above yesterday’s close) and left an unfilled opening gap on the upside.

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

  • the SPY left an unfilled opening gap on the upside (intraday low above the previous session’s close) (Setup S1),
  • the SPY posted an intraday high at least +1.50% above the previous session’s close, but gave back at least -1.25% of its’s gains until the close to finally close near the low (max. +0.25% above the low) (Setup S2),
  • the SPY gave back at least -1.0% of its’s intraday gains until the close on two consecutive sessions (Setup S3),
  • the S&P 500 posted a higher high on three consecutive sessions, a high of at least +1.0% above the previous session’s close on the last two consecutive sessions (both indicating a strong positive bias), while NYSE 52-week Highs came in lower on the most recent sessions then on the previous session (Setup S4), and
  • Setup S2 and Setup S3 combined (Setup S5).

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

20090611-ES-S

Surprisingly and contrary to what one might have assumed, setups S1 to S5 are not all agreeing concerning a supposed negative bias for the then following session (e.g. a potential gap fill on the then following session concerning setup S1, or an assumed potential negative tendency due to the fact that the market couldn’t hold onto it’s intraday gains and gave back at least -1.0% on two consecutive sessions). Especially setup S3 (‘the SPY gave back at least -1.0% of its’s intraday gains until the close on two consecutive sessions‘) shows a significant positive tendency on the then following session, with the majority of occurrences since 10/01/2007 and especially during the most recent ralley which might give this setup additional weight. Only the very specific setups S2, S4 and S5 with a very small sample size (and too small to read any statistically significant into it) show a significant negative tendency on the then following session.

Table II shows the ES (S&P 500 E-MINI) performance (since 01/02/1990) over the course of the then following five sessions immediately following those 253 sessions where the SPY gave back at least -1.0% of its’s intraday gains until the close on two consecutive sessions (setup S3).

20090611-ES-5

Contrary to what one might have assumed, setup S3 shows a strong positive tendency over the course of the then following five sessions, and chances are good that the market closes (significantly) higher 5 sessions later (the profit factor almost doubles the respective at-any-time profit factor for a higher close 5 sessions later).

Table III 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 Friday, June 12) immediately following those 253 sessions where the SPY gave back at least -1.0% of its’s intraday gains until the close on two consecutive sessions (setup S3).

20090611-ES-i3

Probabilities and odds (profit factor) are above-average and positively tilt that the S&P will close higher and above the open on the then following session.

But cautious will probably be warranted, because especially setup S2 shows a significant negative tendency on the then following session.

Table IV 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 Friday, June 12) immediately following those 14 sessions where the SPY posted an intraday high at least +1.50% above the previous session’s close, but gave back at least -1.25% of its’s gains until the close to finally close near the low (max. +0.25% above the low) (setup S2).

20090611-ES-i5Setup S2 shows a negative tendency the then following session due to the fact that on almost every second occurrence the ES left an unfilled opening gap on the downside (intraday high below the previous session’s close), and regularly a tendency for a significantly lower open as well. But remarkable is the positive tendency concerning the fact that although chances for a close above the open are below-average, the respective profit factor on the close – open doubles the respective at-any-time profit factor. So at least concerning this setup chances are significantly tilt in favor of a lower open and a low significantly below Thursday’s close, but any signifcant intraday weakness early in the session might provide a favorable intraday and short-term only buying opportunity.

________________________________

Bottom line:

  1. With respect to Friday’s session is seems that the positive bias (concerning the close) is still alive (for the time being), although the market wasn’t able to hold onto it’s strong intraday gains during the last 2 sessions. Therefore any (significant) weakness on or shortly after the open may provide a favorable buying opportunity especially with respect to the fact that setup S2 shows a significant tendency for an upside reversal (close – open) on any (probable) intraday weakness, and concerning the (bullish) ‘NYSE divergence‘ setup which was triggered on last Friday’s close (5 consecutive sessions with a NYSE TRIN above 1), it seems that the path of least resistance might still be be up, not down (see my post Trading the Odds on Monday – June 8, 2009).

Successful trading,

Frank

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).

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

Filed under: Daily Update, , , , , ,

Trading the Odds on Thursday – June 11, 2009

WE031672-klein

Although Wednesday’s session looked like a rollercoaster ride with a higher high and lower low than the previous session’s high/low and an intraday range of 2.31% (for theS&P 500), the S&P 500 closed almost flat again, and at least concerning it’s magnitude of change on the close in compliance with historcial probabilities and odds (cit. ‘… but notably is at least the fact that even 3 relatively flat sessions are regularly followed by another relatively quite session’, see my post Trading the Odds on Wednesday – June 10, 2009).

The S&P 500 opened higher +0.03%, posted an intraday high +0.78% above Tuesday’s close (and a higher high than Tuesday’s high as well), reversed course and posted an intraday low -1.53% below Tuesday’s close (and a lower low than Tuesday’s low as well), reversed course again and finally closed lower -0.35% only on the day.

Market breadth was mixed with NYSE Advancing Issues/Declining Issues at 0.84, and NYSE Advancing Volume/Declining Volume at 0.73 (for a NYSE TRIN at 1.15). Additionally NYSE Total Volume came in higher than on Tuesday’s session, and especially SPY volume closed at it’s highest level for the last four weeks (although I don’t have the final volume numbers at time of writing). Speculative interstest was once again running very high today, and Nasdaq Total Volume almost doubled NYSE Total Volume again (ratio of 1.97).

With Wednesday’s sesssion the SPX closed within a +/- 0.35% range the fourth sessions in a row.

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

  • the S&P 500 closed within a +/- 0.35% four sessions in a row (Setup S1),
  • the S&P 500 posted a higher high on two consecutive sessions, but closed almost flat (+/- 0.25%) in comparison to the close three sessions ago  (Setup S2),
  • the S&P 500 posted a higher high and a lower low than the previous session’s high/low, but closed almost flat (+/- 0.35%) on the day (Setup S3),
  • the S&P 500 recouped at least 1.0% of it’s intraday losses (on the low) at the close, but closed still lower between -0.5% and 0% on the day (Setup S4), and
  • Setup S1 and Setup S2 combined (Setup S5).

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

20090610-ES-1

With respect to all 5 setups chances are (slightly) tilt in favor of a higher close the then following session, but with respect to setups S1 (4 consecutive flat sessions) and S5 (the combination of 4 flat sessions and two consecutive higher highs) the profit factor (expectany and pay-off) dsignificantly exceeds the respective at-any-time profit factor.

Due to the fact that now the last 4 sessions looked like a consolidation period (or the calm before the strom again) before the market will finally either break higher or lower (it seemed to have tested both directions during Wednesday’s session) , I tought it would be especially interesting -concerning the next session’s intraday stats- to dig a bit deeper into setup S5 (again, like for Wednesday’s session, but now with 4 consecutive flat sessions and 2 consecutive higher highs).

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 11) immediately following those 19 sessions where the S&P 500 closed within a +/- 0.35% four days in a row AND the S&P 500 posted a higher high on two consecutive sessions, but closed almost flat (+/- 0.25%) in comparison to the close three sessions ago (setups S1 and S2 combined).

20090610-ES-1i

Although chances for a higher open/high/low/close/close versus open are comparable to the respective at-any-time probabilities, it is at least remarkable that on all those 19 occurrences the maximum loss on the low and on the close did never exceed -1.0% , and the profit factor on the close and on the close versus open significantly exceed the respective at-any-time profit factor. Concerning setup S5 mentioned above it seems that at least downside potential will probably be limited the then following session.

________________________________

Bottom line:

  1. With respect to Thursday’s session is seems that downside potential will probably be limited, and any weakness on or shortly after the open may provide a favorable buying opportunity especially with respect to the fact as well that concerning the (bullish) ‘NYSE divergence‘ setup which was triggered on last Friday’s close (5 consecutive sessions with a NYSE TRIN above 1), it seems that the path of least resistance might be be up, not down (see my post Trading the Odds on Monday – June 8, 2009), additionally supported by the fact that setup S5 (on Tuesday’s close) historically shows a significant tendency (approximately 2 out of 3 occurrences) for higher closes ahead over the course of the next couple of sessions.

Successful trading,

Frank

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).

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

Filed under: Daily Update, , , , ,

Trading the Odds on Wednesday – June 10, 2009

WE031672-klein

The market seems to have ‘known’ that -concerning the setups which were triggered on Tuesday’s close (see my post Trading the Odds on Tuesday – June 9, 2009)- no significant edge neither on the long nor on the short side was provided concerning Tuesday’s session (but nevertheless probabilities and odds were slighlty tilt in favor of the bullish side), and the S&P 500 reacted accordingly:

The S&P 500 opened higher +0.13%, posted an intraday low -0.32% below Monday’s close, posted an intraday high +0.83% above Monday’s close and finally closed higher +0.35% on the day (in compliance to the probabilities and odds which were slightly tilt in favor of the long side of the market). This was the third day in a row when the S&P 500 closed more or less flat within a +/- 0.35% range (compared to the previous session’s close).

Market breadth was relatively strong with NYSE Advancing Issues/Declining Issues at 1.53, and NYSE Advancing Volume/Declining Volume at 1.37 (for a NYSE TRIN at 1.11, with a ratio above 1 closing in regularly negative territory). Additionally NYSE Total Volume came in lower than on Monday’s session for a third consecutive session on lower NYSE Total Volume. Speculative interstest was once again running very high today, and Nasdaq Total Volume more than doubled NYSE Total Volume.

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

  • the S&P 500 closed higher on the same day when the NYSE TRIN closed in regularly negative territory above 1 (Setup S1),
  • the S&P 500 closed within a +/- 0.35% three sessions in a row (Setup S2),
  • NYSE Volume contracted on three consecutive sessions (Setup S3),
  • the ratio of Nasdaq Total Volume / NYSE Total Volume closed above 2 (Setup S4), and
  • Setup S2 and Setup S3 combined (Setup S5).

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

20090609-ES-1

With respect to all 5 setups chances for a higher/lower close the then following session are mixed only (and do not significantly deviate from the respective at-any-time probabilities for a higher/lower close the following session), and even the profit factor (expectany and pay-off) doesn’t show any significant tradable edge on either side of the market.

Due to the fact that the last 3 sessions looked like a consolidation period (or the calm before the strom) before the market will either break higher or lower, I tought it would be especially interesting -concerning the next session’s intraday stats- to dig a bit deeper into setup S5.

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 Wednesday, June 10) immediately following those 67 sessions where the S&P 500 closed within a +/- 0.35% three days in a row AND NYSE Volume contracted on three consecutive sessions (setups S2 and S3 combined).

20090609-ES-1i20090609-ES-1i2

But even with respecto to the intraday stats no significant edge is provided, but notably is at least the fact that even 3 relatively flat sessions are regularly followed by another relatively quite session due to the fact that the average winning trade and the average losing trade on the open, high, low and close are (significantly) lower than the respective at-any-time winning/losing trade, means the magnitude of change on the open/high/low/close/close versus open on those session immediatley following those 67 sessions where the respective setup had been triggered is -on average- (partly significantly) lower than the respective at-any-time magnitude of change.

Table III now shows the ES (S&P 500 E-MINI) performance (since 01/02/1990) over the course of the following five sessions immediately following those 67 sessions where the S&P 500 closed within a +/- 0.35% three days in a row AND NYSE Volume contracted on three consecutive sessions (setups S2 and S3 combined).

20090609-ES-1i5With respect to the S&P 500′ performance over the course of the then following 5 sessions it is especially remarkable that at least in the past such consolidation periods (setup S5) have been regularly resolved to the upside. Not only probabilities for a higher close over the course of the next couple of sessions are -from a historically and statistically perspective- tilt in favor of higher closes ahead, especially the respective profit factor is significantly higher than the respective at-any-time profit factor.

________________________________

Bottom line:

  1. With respect to Wednesday’s session is seems wise to keep the powder dry until the market provides a tradable edge again. Like in Blackjack and Poker you’ve to know when to hold, when to fold and when to go. On Wednesday’s session the deck will be shuffled again. But  keep in mind that with respect to the (bullish) ‘NYSE divergence‘ setup which was triggered on last Friday’s close (5 consecutive sessions with a NYSE TRIN above 1), it seems that the path of least resistance might be be up, not down (see my post Trading the Odds on Monday – June 8, 2009), additionally supported by the fact that setup S5 historically shows a significant tendency (approximately 2 out of 3 occurrences) for higher closes ahead over the course of the next couple of sessions.

Successful trading,

Frank

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).

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

Filed under: Daily Update, , , , ,

Trading the Odds on Tuesday – June 9, 2009

WE031672-klein

If it wouldn’t have been for the final two minutes of today’s regular session (when the SPX turned from slightly above to slightly below Friday’s close, but from my point of view that is negligible), I think Monday’s session not only fully complied again to the probabilities and odds concerning the  setup which was triggered on Friday’s close (‘the S&P 500 closed higher on at least 3 out of 5 sessions when the NYSE TRIN closed above 1.00 in negative territory on all five sessions’, see my post Trading the Odds on Monday – June 8, 2009), but the market first and foremost provided the favorable opportunity on the long side on any weakness at the earliest possible time.

The S&P 500 opened lower -0.21%, posted an intraday low -1.45% below Friday’s close early in the session, but reversed course to finally close lower -0.10% on the day providing the favorable buying opportunity early during today’s session.

Market breadth was mixed with NYSE Advancing Issues/Declining Issues at 0.59, and NYSE Advancing Volume/Declining Volume at 0.74 (for a relatively strong NYSE TRIN at 0.79, with a ratio below 1 closing in regularly bullish territory.) Additionally NYSE Total Volume came in significantly lower than on Friday’s session.

I therefore checked for the following setups which were all triggered on Monday’s close:

  • the S&P 500 closed lower on two consecutive sessions (Setup S1),
  • the S&P 500 closed lower on the same day when NYSE Total Volume came in below the previous session’s  NYSE Total Volume and the NYSE TRIN closed below 0.80 in regularly positive territory (Setup S2),
  • the S&P 500 closed lower on the day, but recouped at least +1.0% from it’s intraday losses at the close (Setup S3),
  • Setup S1 and Setup S2 combined (Setup S4), and
  • Setup S2 and Setup S2 combined (Setup S5).

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

20090608-ES-1

Although chances for a higher/lower close the then following session are mixed concerning all 5 setups, the respective profit factor (expectany and pay-off) always exceeds the respective at-any-time profit factor, which means the sum of all potential gains on the upside exceeds the sum of all potential losses on the downside (being long the market) and show a (partly significant) higher profitability than a buy-and-hold approach or investing randomly.

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 Tuesday, June 9) immediately following those 21 sessions where the S&P 500 closed lower on two consecutive sessions on the same day when ‘NYSE Total Volume came in below the previous session’s NYSE Total Volume and the NYSE TRIN closed below 0.80 in regularly positive territory on the most recent session (setups S1 and S2 combined).

20090608-ES-1i

Probabilities and odds are tilt in favor of a higher open (11 out of 17 occurrences), a high (significantly) above the previous session’s close (the respective profit factor on the ‘high’ -just for statistical purposes to visualize the potential magnitude of change on the upside- almost dounles the respective at-any-time profit factor on the ‘high’), but especially remarkable is the market’s historical tendency for leaving an unfilled opening gap on the upside the then following session (on 7 out of 21 occurrences).

________________________________

Bottom line:

  1. Although there seems to be no significant edge on the long or short side of the market on Tuesday’s session, probabilities and odds seem to be at least slightly tilt in favor of the long side of the market additionally supporting the positive outlook for the week based on the ‘NYSE divergence’ setup which was triggered on Friday’s close. So again any weakness on or shortly after the open will probably provide a favorable short-term buying opportunity (especially due to the fact that ‘buying the dip’ seems to be -at least for the time being- the prevailing theme).

Successful trading,

Frank

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).

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

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  • $EWZ (iShares MSCI Brazil Index) - down -19.09% in September - currently drops another -1.75% in early trading ... 13 hours ago
  • Since 2001, w/ $VIX up >+3 from 10-15 range, $SPX closed at a higher level 1 month (22 business days) later on all (!) 10 occurrences. 6 days ago
  • Since 2001, w/ $VIX up >+3 from 10-15 range, $SPX posted at least 1 higher close during next 5 days on all 10 occur. 6 days ago
  • New posting on the blog: »RVX and VXEEM – Gap Closed (Reversion To The Mean)« ( tradingtheodds.com/2014/09/rvx-an… ) 2 weeks ago
  • w/ $VIX up >25%, $SPX closed at a higher level at least once during next 5 days on 17 of 18 (10 days all 18) occur. (since 10/10/2003). 2 months ago

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