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 Wednesday – April 8, 2009

Trading the Odds on Wednesday – April 8, 2009

Tuesday’s session played -at least concerning the follow-through of Monday’s weakness- partly out as expected (see my posting Trading the Odds on Tuesday – April 7, 2009), but the market missed great parts (if not all) of the expected intraday strength shown by those 14 out of the last 15 sessions which fulfilled the setup triggered on yesterday’s session (S&P 500 posting a lower open, a lower high, a lower low and a lower close on lower volume).

But the same signal which was triggered on Monday’s session (S&P 500 posting a lower open, a lower high, a lower low and a lower close on lower volume) was triggered on Tuesday’s session again, especially due to the fact that SPY (and NYSE volume as well) volume came in lower the third day in a row for a new 8 weeks low (since 02/09/2007).  But in addition to Monday’s session the SPY posted an intraday high below the previous session’s close, and closed below the open as well for the ‘6 Lows‘ setup .

6 Lows‘ setup: The SPY

  • posted a lower open,
  • posted a lower low than the previous session’s low,
  • posted a lower high than the previous session’s high,
  • posted a high below the previous session’s close,
  • posted a lower close,
  • and finally closed below the open.

(but the SPY left no unfilled gap due to the fact that Tuesday’s high exceeded Monday’s intraday low)

Since 10/01/2007 (approximately the beginning of the current bear market) there were 57 occurrences when the ’6 Lows’ setup was triggered (for the SPY). The following table shows the SPY‘ behavior and the respective performance on the last 35 occurrences since 10/01/2007 the session after the signal was triggered:

SPY’ performance on the following session
No. Date open high low close close -
open
1 03/30/2009 +0,98% +2,91% +0,33% +0,93% -0,05%
2 03/27/2009 -2,22% -2,13% -4,47% -3,46% -1,27%
3 03/20/2009 +2,65% +7,27% +2,09% +7,18% +4,42%
4 03/05/2009 +0,87% +2,40% -2,47% +0,17% -0,69%
5 03/02/2009 +1,43% +1,56% -1,36% -0,75% -2,15%
6 02/17/2009 +0,72% +0,91% -1,19% -0,24% -0,95%
7 02/10/2009 +0,41% +1,13% -0,85% +0,59% +0,18%
8 01/29/2009 +0,51% +1,01% -2,77% -2,03% -2,53%
9 01/20/2009 +1,70% +4,56% -0,12% +4,32% +2,58%
10 01/14/2009 -0,30% +1,04% -3,14% +0,04% +0,33%
11 01/12/2009 -0,25% +1,07% -0,86% +0,18% +0,44%
12 01/07/2009 -0,56% +0,46% -1,10% +0,41% +0,98%
13 12/01/2008 +1,66% +4,12% -0,09% +3,85% +2,16%
14 11/19/2008 -1,68% +1,24% -7,91% -7,42% -5,84%
15 11/11/2008 -1,72% +0,43% -5,18% -4,40% -2,73%
16 11/06/2008 +0,87% +3,46% -0,40% +3,30% +2,41%
17 10/22/2008 -0,39% +2,00% -5,33% +1,16% +1,55%
18 10/15/2008 +1,41% +5,28% -3,87% +4,17% +2,72%
19 10/06/2008 +2,02% +2,49% -4,84% -4,48% -6,37%
20 10/02/2008 +0,90% +3,22% -1,94% -1,35% -2,23%
21 09/17/2008 +1,23% +4,44% -2,41% +2,97% +1,71%
22 09/15/2008 -2,41% +1,86% -2,57% +1,67% +4,18%
23 09/04/2008 -0,60% +0,74% -1,64% +0,31% +0,92%
24 08/29/2008 +0,96% +1,49% -0,99% -0,62% -1,57%
25 08/25/2008 +0,00% +0,67% -0,35% +0,29% +0,29%
26 08/19/2008 +0,31% +0,76% -0,51% +0,46% +0,15%
27 08/12/2008 -0,43% +0,23% -1,30% -0,60% -0,17%
28 08/07/2008 -0,34% +2,30% -0,50% +1,86% +2,20%
29 08/04/2008 +0,82% +2,86% +0,73% +2,70% +1,86%
30 06/26/2008 +0,04% +0,49% -0,93% -0,55% -0,58%
31 06/20/2008 +0,39% +0,49% -0,20% -0,10% -0,48%
32 06/18/2008 -0,07% +0,74% -0,54% +0,13% +0,20%
33 06/06/2008 +0,42% +0,89% -0,65% +0,24% -0,18%
34 06/02/2008 +0,29% +0,52% -1,20% -0,58% -0,87%
35 05/23/2008 +0,12% +0,99% -0,08% +0,74% +0,62%


(‘date’: date when the setup was triggered; ’open’, high’, ‘low’ and ‘close’: percentage change on the next session in comparison to the trigger date’s close; close – open’ speaks for itself: any positive percentage change means a close above the open and vice versa)

These 57 occurrences share something in common:

  • the SPY posted a low below the previous session’s close on 52 occurrences (out of 57) during the next session (Wednesday)
  • the SPY posted a high above the previous session’s close on 53 occurrences (out of 57) during the next session, and
  • the SPY closed higher than the previous sessions close on 32 occurrences (compared to 25 lower closes, above the respective at-any-time probability for a higher close the next session).

Bottom line:

  1. Probabilities and odds concerning the ’6 Lows’ setup (SPY) are (partly significantly) above their respective at-any-time probabilities and odds for an overall (but probably not one-way directed) bullish tendency on Wednesday’s session (but we will probably see quotes above and below Tuesday’s close during tomorrow’s session). And take into account that today’s decline came on lighter volume (positive for the market), in addition to the bullish time frame concerning the running 4-day summation of the Arms Index (breadth) which will go into effect after today’s (Tuesday’s close), chances are good that (at least) Wednesday’s session will probably go to the bulls.

Successful trading,

Frank

P.s.: WordPress recently implemented a Twitter widget, so I’ll regularly make some intraday updates as well using Twitter (as I already did during the last couple of session, but unfortunately there seems to be a connectivity issue between WordPress and Twitter; hope that will be solved soon). If you’re interested in, please have a look at the blog during the trading session as well or subscribe directly to Twitter.


Disclosure
: Long BGU (Large Cap Bull 3x Shares) at time of writing.

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