Trading the Odds on Thursday – June 4, 2009

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I’ll be on vacation (in Italy)

starting Sunday, May 31 and going through the end of next week.

While I’m away

frequency and extensiveness of blogging will mainly depend on the local availability of cellular broadband internet access and/or local WLAN (chances are good), but will probably be less frequent and shortened as well.

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On Wednesday’s session the market (S&P 500) almost perfectly complied to the negative setup triggered on Tuesday’s close when ‘the S&P 500 closed higher four consecutive sessions‘ on the same day when ‘the NYSE TRIN closed above 1 the second consecutive session ‘ (see my post Trading the Odds on Wednesday – June 3, 2009).

The S&P 500 opened lower -0.24%, posted an intraday low -2.21% below Tuesday’s close (which is a bit more than what could have been expected from the market’s history concerning the setup triggered on Tuesday’s close), closed modestly lower -1.37% on the day and finally left an unfilled opening gap on the downside which has already been a regular pattern (now 5 out of 12 occurrences concerning the setup triggered on Tuesday’s close, see my post Trading the Odds on Wednesday – June 3, 2009 ).

Market breadth was notably weak with NYSE Advancing Issues/Declining Issues at 0.38, and NYSE Advancing Volume/Declining Volume at 0.14 (NYSE TRIN at 2.66) . Remarkable was the fact that the Nasdaq 100 out-performed the S&P 500 by a wide margin today (better than +1.0%).

With respect to normal market conditions, and as always from a historical and statistical perspective, several setups with (again) a (significantly) positive tendency concerning the S&P 500′ next session’s performance were triggered on Wednesday’s close:

• the S&P 500 left an unfilled opening gap on the downside (Setup S1),
• the S&P 500 closed lower at least -1.25% on the day (Setup S2),
• NYSE TRIN closed above 2.5 (Setup S3),
• the Nasdaq 100 out-performed the S&P 500 by at least +1.0%, and
• Setups S1 and S2 and S3 combind (Setup S5).

Table I shows the ES‘ (S&P 500 E-MINI) performance (since 01/02/1990) on the next session (in this event Thursday, June 3) immediately following those sessions where setup S1 to S5 listed above had been triggered.

It is especially notable that the market (E-mini S&P 500) shows a (sometimes significant) tendency of a higher close the then following session with respect to all 5 setups, concerning both the probability for a higher close the next session and profit factor (expectancy and pay-off) as well. Especially setup S5 (S&P 500 left an unfilled opening gap on the downside, closed lower at least -1.25% with a NYSE TRIN above 2.5) shows a significant positive tendency on the then following session with a probability (69.57%) and profit factor (3.38) significantly above the respective at-any-time probability for a higher close the then following session (52.64%) and at-any-time profit factor (1.07) as well.

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 4) immediately following those 46 sessions where ‘the S&P 500 left an unfilled opening gap on the downside and closed lower at least -1.25%‘ on the same day when ‘the NYSE TRIN closed above 2.5 ‘ (setups S1 and S2 and S3 combined).

It is especially notable that

1. the market (S&P 500 E-MINI) regularly shows a notable tendency of a higher open on the next session (on 32 out of 45 occurrences),
2. the market (S&P 500 E-MINI) regularly shows a notable tendency of a significantly above-average intraday upside potential during the next session due to the fact that the respectiv profit factor on the ‘high’ (78.98) significantly exceeds -almost five-fold- the respective at-any-time profit factor of 16.52 (for statistical purposes only in order to demonstrate the potential magnitude of change on the high),
3. chances are high as well that the market will finally close higher on the day, with 32 higher closes out of 46 occurrences and a profit factor of 3.38 significantly above the respective at-any-time profit factor of 1.07 (and a close above the open as well with 29 higher closes out of 46 occurrences and a respective profit factor which triples the respective at-any-time profit factor on a potential close above the open).

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Bottom line:

1. History suggests that we’ll see a rebound on Thursday’s session, and there is a good chance that the SPX will probably fill Wednesday’s unfilled opening gap on the downside at least sometimes during Thursday’s session (the average high concerning setup S5 mentioned above is +1.49% above the previous session’s close), if not on the close as well (the average close concerning setup S5 mentioned above is +1.37% above the previous session’s close).  Any weakness on or shortly after the open will probably provide a (short-term and intraday only) favorable 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: No positions in the securities mentioned in this post at time of writing.

Filed under: Daily Update, $SPX, Odds, Probability, S&P 500, Trading

Trading the Odds on Wednesday – June 3, 2009

__________________

I’ll be on vacation (in Italy)

starting Sunday, May 31 and going through the end of next week.

While I’m away

frequency and extensiveness of blogging will mainly depend on the local availability of cellular broadband internet access and/or local WLAN (chances are good), but will probably be less frequent and shortened as well.

__________________

On Tuesday’s session the market confirmed the fact that we’re currently experiencing some abnormal market conditions due to the fact that it not followed the path of least resistance and closed down, based on the fact that the S&P 500 triggered an ontherwise reliable sell signal on Monday’s session when ‘the S&P 500 opened higher, posted a higher high, a higher low, a higher close than the previous session’s high/low/close, finally closed above the open and left an unfilled opening gap on the upside‘ on the same day when ‘the ratio of NYSE Advancing Issues/Declining Issues came in higher than 4, but the ratio of NYSE Advancing Volume/Declining Volume came in only higher than 3 below the ratio of NYSE Advancing Issues/Declining Issues, for a logically higher NYSE TRIN at 1.37‘, but followed those 3 sessions since 02/01/1990 when the S&P 500 had posted 3 consecutive higher closes at least +1.3% above the previous session’s close (04/02/2009, 01/02/2009, 08/08/2002, like Monday June 1, 2009) and posted a fourth higher close.

The market on Tuesday again build on last week’s and Monday’s gains and posted another higher close +0.20%, but could not hold onto its intraday high of +0.69% above Monday’s close.

But this time market breadth was (relatively) weak with NYSE Advancing Issues/Declining Issues at 1.46, and NYSE Advancing Volume/Declining Volume at 1.10 (NYSE TRIN at 1.33), the second consecutive session with a higher close for the S&P 500 but a NYSE TRIN in negative territory above 1.

With respect to normal market conditions, and as always from a historical and statistical perspective, several setups with (again) a (significantly) negative tendency concerning the S&P 500′ next session’s performance were triggered on Tuesday’s close:

• with Tuesday’s session the S&P 500 closed higher the fourth consecutive session (Setup S1),
• NYSE TRIN closed above 1 the second consecutive session at the same time when the S&P 500 had posted 2 consecutive higher closes,
• speculative interest is running very high, with the ratio of NASDAQ Total Volume / NYSE Total Volume above 1.75 on Tuesday’s session,
• Setups S1 and S2 combind (Setup S4),
• Setups S1 and S3 combind (Setup S5),

Table I shows the ES‘ (S&P 500 E-MINI) performance (since 01/02/1990) on the next session (in this event Wednesday, June 3) immediately following those sessions where setup S1 to S5 listed above had been triggered.

It is especially notable that the market (E-mini S&P 500) shows a significant tendency of a lower close the then following session with respect to all 5 setups, concerning both the probability for a lower close the next session and profit factor (expectancy and pay-off) as well. Especially setup S2 (S&P 500 with 2 consecutive higher closes with a NYSE TRIN above 1 on both sessions) shows a significant negative tendency on the then following session.

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 2) immediately following those 11 sessions where ‘the S&P 500 closed higher four consecutive sessions‘ on the same day when ‘the NYSE TRIN closed above 1 the second consecutive session ‘ (setups S1 and S2).

It is especially notable that

1. the market (S&P 500 E-MINI) regularly shows a notable tendency of an unfilled opening gap on the downside (on 4 out of 11 occurrences),
   
2. the market (S&P 500 E-MINI) regularly shows a notable tendency of limited intraday upside potential during the next session due to the fact that the respectiv profit factor on the ‘high’ (7.28) is less than half the respective at-any-time profit factor (for statistical purposes only in order to demonstrate the magnitude of change on the high),
3. chances are high as well that the market will finally close lower on the day, with 9 lower closes out of 11 occurrences and a profit factor of 0.53 significantly below the respective at-any-time profit factor of 1.07 (and a close below the open as well with 9 -especially the last 9- lower closes out of 11 occurrences), but
4. downside potential on the intraday low and on the close seems to be limited, with a maximum low of -2.17% below the previous session’s close, and maximum lower close of -1.40%. So chances for any kind of significant downside on Wednesday’s session are low.
   

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Bottom line:

1. History suggests that that market is currently even more (short-term only) extended on the upside. Under normal market conditions the S&P 500 would probably show some intraday weakness on Wednesday’s session and would probably close modestly lower as well, but downside potential (on the intraday low and close) will probably be limited.

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 BGZ (Daily Large Cap Bear 3x Shares ) at time of writing.

Filed under: Daily Update, $SPX, Odds, Probability, S&P 500, Trading