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 Thursday – April 30, 2009

I think on Wednesday’s session we couldn’t have asked for more: S&P 500 and Nasdaq fully complied again to the expected bullish outcome for today’s session based on those setups which were triggered at the end of last week and Tuesday’s session respectively (see my post Trading the Odds on Wednesday – April 29, 2009).

The S&P 500 closed up +2.16% while the Nasdaq closed up +1.50% on the day, both on strong breadth with Advancing Issues / Declining Issues and Advancing Volume / Declining Volume exceeding the ratio of 3 for the Nasdaq and 5.2 (Issues) / 7.9 (Volume) on the NYSE.

As already pointed out via Twitter big up days like today regularly show a (significant) above-average tendency for a short-term consolidation of those gains over the course of the next 2 sessions.

Since 01/03/2000 there were 17 occurrences where the S&P 500 posted the ‘6 Highs’ setup (higher open, higher low, higher high, higher close, low above the previous session’s close and a close above the open) while Advancing Issues / Declining Issues and Advancing Volume / Declining Volume posted a reading above 5. The following table (Table I) shows the S&P 500’s behavior and the respective performance over the course of the then following 10 sessions concerning those 17 occurrences since 01/03/2000 which fulfilled the setup mentioned before. Especially notable is the fact that over the course of the then following two sessions true chances for a higher/lower close (probabilities) and odds (profit factor as the sum of all profits divided by the sum of all losses) are (slightly) tilt in favor of lower quotes ahead, but with a positive outlook from day three onward:

20090429-spx1


Since 01/03/2000 there were 21 occurrences where the Nasdaq posted the ‘6 Highs’ setup (higher open, higher low, higher high, higher close, low above the previous session’s close and a close above the open) while Advancing Issues / Declining Issues and Advancing Volume / Declining Volume posted a reading above 3. The following table (Table II) shows the Nasdaq’s behavior and the respective performance over the course of the then following 10 sessions concerning those 21 occurrences since 01/03/2000 which fulfilled the setup mentioned before. Especially notable is the fact that over the course of the then following two sessions (but eye-catching on the then following day one, in this event Thursday’s session) true chances for a higher/lower close (probabilities) and odds (profit factor as the sum of all profits divided by the sum of all losses) are significantly tilt in favor of a bearish outcome which is additionally fortified by the fact that the Nasdaq under-performed the SPX on today’s strong session.

20090429-ndx

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Bottom line:

  1. Wednesday’s strong up day with the ‘6 Highs’ setup triggered for the SPX and Nasdaq as well indicates a consolidation day on Thursday, especially on the Nasdaq which under-performed the SPX today, but with respect to the other setups triggered at the end of last week any consolidation/pullback might be shallow only with limited downside potential for the remainder of the week. Just my take …

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 (recommended).

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

Filed under: Daily Update, , , , ,

Twitter Updates

  • Looks like we're going to end the week on a strong note … $ES_F ($SPX) currently up 1.10% on Globex. 8 hours ago
  • New posting on the blog: Trading Volatility – Some XIV and VXX (Ir)Regularities ( tradingtheodds.com/2014/10/tradin… ) 17 hours ago
  • VOLATILITY RISK PREMIUM STRATEGY (VRP) on Thu., 10/30/2014: Long $XIV maintained (assumed nothing spectacular happens into the close) 18 hours ago
  • PRELIMINARY ESTIMATE: VOLATILITY RISK PREMIUM STRATEGY (VRP) on Thu., 10/30/2014: If $SPX closes below 1997, long $XIV maintained. 21 hours ago
  • VOLATILITY RISK PREMIUM (VRP) STRATEGY on Wed., 10/29/2014: w/ $SPX > 1978, Long $VXX closed out, switch to long $XIV (market-on-close). 1 day ago

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