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 Friday – June 5, 2009

WE031672-klein

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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 Thursday’s session the market (S&P 500) almost perfectly complied again to the positive setup triggered on Wednesday’s close when ‘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 (see my post Trading the Odds on Thursday – June 4, 2009). The one exception was the fact (better the ‘probability’) -although it was close- that the S&P 500 wasn’t able to fill the opening gap on the downside left open on Wednesday’s session (but I hope nobody wants to nit-pick).

The S&P 500 opened almost unchanged (+0.08%), posted an intraday low -0.26% below Wednesday’s close shortly after the open (which provided the forecasted favorable buying opportunity on a weak open), and closed higher +1.15% on the day.

Market breadth was relatively strong (but with a NYSE TRIN in regularly negative territory above 1) with NYSE Advancing Issues/Declining Issues at 3.48, and NYSE Advancing Volume/Declining Volume at 2.76 (NYSE TRIN at 1.26). Speculative interest was again running very high today, with the ratio of Nasdaq Total Volume / NYSE Total Volume at 1.87. Additionally the S&P 500 under-performed the S&P 500 Equal Weigthed Index ($SPXEW) by a wide margin of -1.38% today.

From a historical and statistical perspective, several setups with a negative tendency concerning the S&P 500′ next session’s performance were triggered on Thursday’s close:

  • the S&P 500 closed higher at least +1.0% on the same day when NYSE TRIN closed above 1.25 in negative territory (Setup S1),
  • the S&P 500 closed almost on the high (in the top quartile) on the same day when NYSE TRIN closed above 1.25 in negative territory (Setup S2),
  • the S&P 500 under-performed the S&P 500 Equal Weighted index by at least -1.25% (Setup S3),
  • speculative interest running high with the ratio of Nasdaq Total Volume / NYSE ToTal Volume > 1.75 (Setup S4), and
  • the S&P 500 closed higher at least +1.0% on the same day when the S&P 500 under-performed the S&P 500 Equal Weighted index by at least -1.25% (Setup S5).

Table I shows the ES (S&P 500 E-MINI) performance (since 01/02/1990) on the next session (in this event Friday, June 5) immediately following those sessions where setups S1 to S5 listed above had been triggered.

2009-06-04-ES-1

It is especially notable that the market (E-mini S&P 500) shows a (sometimes significant) tendency of a lower close the then following session with respect to  almost all 5 setups, concerning both (but to a small extent only) the probability for a lower close the next session and (to a much higher extent) profit factor (expectancy and pay-off) as well. Especially setup S1 (the S&P 500 closed higher at least +1.0% on the same day when NYSE TRIN closed above 1.25 in negative territory) shows a significant negative tendency on the then following session with a probability (30.77%) and profit factor (0.20) significantly below the respective at-any-time probability for a higher close the then following session (52.63%) 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 Friday, June 5) immediately following those 13 sessions where the S&P 500 closed higher at least +1.0%on the same day when ‘NYSE TRIN closed above 1.25 in negative territory.

2009-06-04-ES-i1

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 13 occurrences),
  2. the average losing trade on the low, the close and the close versus the open significantly exceeds the respective at-any-time losing trade and the setup’s respective average winning trade  (one reason for the low profit factor) as well (forecasting some significant intraday weakness),
  3. chances are high as well that the market will finally close lower on the day, with 9 lower closes out of 13 occurrences and a profit factor of 0.20 significantly below the respective at-any-time profit factor of 1.07 (and a close below the open as well with 9 lower closes out of 13 occurrences and a respective profit factor of 0.14 only even lower than the already worse profit factor on the close).

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Bottom line:

  1. History suggests that we’ll see a weak tendency on Friday’s session, and any strength on or shortly after the open will probably provide a (short-term and intraday only) favorable selling 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.

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2 Responses

  1. Carlos says:

    Frank,

    Just wanted to add my thanks to those of others, for your keeping up with your blog while on vacation. It is much appreciated!

    Also, thanks for the explanation (in yesterday’s blog) as to why you weren’t taking a position on some of the trades this week. I was wondering about that, but now I get it.

    Enjoy the remainder of your time in Italy — it’s a great place.

    =Carlos=

  2. Frank says:

    Frank:

    My approach is to purchase SPX options and futures data from the exchanges and write computer programs to analyze them, and I’ve found my analysis and yours (with respect to the next day’s trend) agree most of the time. For example for June 5 my analysis shows the market may drop but not that much. I’m glad you write your blog as your analysis is the most accurate I’ve found on the Web. Keep up the good work and well done!

    Frank

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The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

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