The S&P 500 fully complied to today’s bearish forecast based on the negative setup triggered on Tuesday’s session when the ratio of NYSE Advancing Issues/Declining Issues closed above 4.5 and NYSE Advancing Volume/Declining Volume closed above 5.5 on the same day (see my post Trading the Odds on Wednesday – May 27, 2009).
The S&P 500 closed lower -1.90% on the day, and what looked like a positive divergence between a relatively strong breath and a relatively weak index approximately 90 minutes before the close (NYSE TRIN in bullish territority < 1.0 when the S&P 500 was already dwon more than -1.0%, see my Twitter update) finally turned into a session with breath significantly lopsided on the downside. NYSE Advancing Issues/Declining Issues closed at 0.44, and NYSE Advancing Volume/Declining Volume at 0.24 (NYSE TRIN at 1.81).
But although the S&P 500 closed significantly lower on a very week breadth, especially remarkable was the fact that the S&P 500 nevertheless posted a higher high than Tuesday’s high and a higher low than Tuesday’s low which triggered a short-term buy signal on Wednesday’s close.
At first Table I below shows the ES‘ (S&P 500 E-MINI) performance (since 01/02/1990) concerning setups S1 to S5 -side by side- on the next sessions assumed one would have bought the ES on close of the respective session where setups S1 to S5 had been triggered. Setups S1 to S5 are defined as
Table I
- Setup S1: the S&P 500 closed lower at least -1.90% on the day
- Setup S2: the S&P 500 posted a higher high and higher low than the previous session’s high/low
- Setup S3: NYSE TRIN closed above 1.80
- Setup S4: Setups S1 und S2 combined
- Setup S5: Setups S1 und S3 combined
It is especially notable that on the session immediately following those sessions where the S&P 500 had either closed lower at least -1.90%, or the NYSE TRIN closed at 1.80 or higher, or especially where the S&P 500 not only closed lower at least -1.90% but posted a higher high and higher low as well, probabilities for a higher close and odds (expectany / pay-off) are significantly tilt in favor of the bullish side (a short-term snap-back).
Table II below 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, May 28) immediately following those sessions where the S&P 500 not only closed lower at least -1.90% but posted a higher high and higher low as well.
It is especially notable that -although the sample size is way too small to read any statistically relevent into it- the market shows a tendency for a weak open (3 sessions with a higher open, 5 with a lower open, but the average lower open is down -0.95% compared to an at-any-time lower open of -0.38% only), but a remarkable tendency for some intraday strength as well with an average intraday high +1.87% above the previous session’s close, and finally with 7 higher and only 1 lower close.
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Bottom line:
- Today’s magnitude of change on the downside (-1.90%), the weak breadth (NYSE TRIN at 1.80) and the higher high and higher low on today’s session triggered a short-term buy signal on the close, and any weakness on Thursday’s open will probably provide a favorable short-term (intraday) buying opportunity.
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: Long BGU (Daily Large Cap Bull 3x Shares ) at time of writing.
Filed under: Daily Update, $SPX, ES, Odds, Probability, S&P 500, Trading
Typo – ‘loosing’ :)
Isn’t the higher high and lower low than yesterday a textbook bearish key reversal day? Your data is interesting nonetheless with the short term bullish case.
dude,
thanks a lot for the hint.
In fact it was a higher high and higher (not lower) low. That was a typo on top of the page while it was stated correctly whenever it was mentioned otherwise in my post.
Best,
Frank
Dear Frank,
Do you do trade the markets because actuarial work is too boring? lol.
Anyway, in your opinion, would it be beneficial to marry up the respective historical VIX range for each “immediately following trigger day” with the S&P intraday performance stats in order to better a better feel for which dates we’re more likely to replicate?
For example, on 12/05 the VIX was at 60% whereas today we’re like half that and therefore, it is even less likely we’ll replicate the wide S&P intraday swings on 12/05. If we discount that scenario, then a -1.89% open to a move lower of -3.60% would trigger an exit rather than a hope for a reversal to +2.94% at the close because the current VIX probably couldn’t support that sort of volatility.
Does this make sense? Would you agree it would be easier to handicap the scenarios if we could eyeball the VIX on the chart? Thanks for your consideration. Please take no offense.
Thank you,
-A.
ADD,
although taking into account historical and most recent volatility in order to determine potential/probable (intraday) entry and exit points, intraday ranges as well as potential profit targes is -for day trading purposes- highly reccommended, I wouldn’t utilze the VIX for that purpose. The VIX reflects market participant’s expectation of (annualized) market volatility over the course of the then following 30 calendar days and will probably not be a good proxy for tomorrow’s intraday volatility and swings (I’d prefer historcical volatility and/or Wilder’s (Averag) True Range for that purpose). But sometimes specific pattern show a tendency of wide swings on the next session regardless of historical and/or expected future volatility.
But it is neither intended nor probable that the then following session will (exactly) replicate any of thoses sessions which fulfilled any the setups (with respect to the minimum low, maximum high, close or any intraday range), but historical occurrences are listed for informational purposes only. The objective is to show tendencies, probabilities and odds, any potential entry and exit point or profit target (or if the risk:reward is worth the trade at all) depends solely on the reader/trader.
Best,
Frank