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 29, 2009

On Tuesday the market was fully compliant again to the -from a statistical point of view and concerning those setups which were triggered on Monday’s close- most probable outcome including the underperformanc4 of the Nasdaq compared to the S&P 500 (see my post Trading the Odds on Tuesday – April 28, 2009):

The S&P 500 as well as the Nasdaq opened lower, providing the favorable buying opportunity shortly after the open not only with respect to Tuesday’s close, but probably for the next couple of sessions as well. The S&P 500 finally closed lower -0.27% on the day while the Nasdaq lost -0.59%, under-performing the S&P 500 as expected due to the notable weak breadth on Monday’s session which indicated a short-term negative bias concerning Tuesday’s session (cite. ‘So on Tuesday I wouldn’t be surprised if the Nasdaq underperforms the S&P 500 while besides it is more often the other way around.‘)

Except the fact that Monday’s (bullish) bottom-line for the rest of the week went into effect from today’s close onwards …

  1. The S&P 500′ under-performance of the SPXEW during the last 4 consecutive sessions of the last week indicated that any pullback on Monday and/or Tuesday would probably be shallow only and may have provided a buying opportunity with respect to the rest of the week.
  2. But with respect to the S&P 500′ under-performance of the SPXEW during the last 4 consecutive sessions of the last week and the Nasdaq’s historical tendency to trade on a firm note at least from day two onward after this setup had been triggered, up to now probabilities and odds are tilt in favor of a bullish tendency for the rest of the week, and any weakness on Tuesday’s session (either during the session and/or at the close) might provide a favorable short-term buying opportunity with respect to the remainder of the week and/or Tuesday’s close as well if we see some follow-through of today’s weakness already during Tuesday’s session.

there was another notable setup triggered today: On both the S&P 500 as the Nasdaq 100 as well although both indexes close lower, the ratio of Advancing Issues / Declining Issues posted a bullish reading above 1 (advancing issues outnumbered declining issues in both indexes) while Advancing Volume / Declining Volume posted a weak reading of below 0.75 on both indexes. Although the sample size is too small to read any statistically relevant into it (but as always something to keep in mind), and although true chances (probabilities) for a higher/lower close the next session (in this case Wednesday) are approximately even for the S&P 500,  true chances for a higher close with respect to the Nasdaq AND odds (profit factor) concerning both indexes are significantly tilt in favor of a bullish outcome due to the fact that any potential gains on a winning trades are significantly above the respective loss on a loosing trade.

Since 01/03/2000 there were 15 occurrences where the S&P 500 closed lower while Advancing Issues / Declining Issues posted a reading above 1.1 and Advancing Volume / Declining Volume came in below 0.75 (3:4 negative). 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 15 occurrences since 01/03/2000 which fulfilled the setup mentioned before. Especially notable is the fact that over the course of the then following four sessions true chances for a higher close (probabilities)  are slightly tilt in favor of higher closes, but odds (profit factor as the sum of all profits divided by the sum of all losses) are significantly tilt in favor of a bullish outcome.

20090428-spx

Since 01/03/2000 there were 20 occurrences where the Nasdaq closed lower while Advancing Issues / Declining Issues posted a reading above 1.1 and Advancing Volume / Declining Volume came in below 0.75 (3:4 negative). The following table (Table I) shows the Nasdaq’s behavior and the respective performance over the course of the then following 10 sessions concerning those 20 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) true chances for a higher 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 bullish outcome.

20090428-ndx

________________________________

Bottom line:

  1. The S&P 500′ under-performance of the SPXEW during the last 4 consecutive sessions of the last week indicated that any pullback on Monday and/or Tuesday would probably be shallow only and may have provided a buying opportunity with respect to the rest of the week. This setup went into full effect on Tuesday’s close.
  2. With respect to the S&P 500′ under-performance of the SPXEW during the last 4 consecutive sessions of the last week and the Nasdaq’s historical tendency to trade on a firm note at least from day two onward after this setup had been triggered, probabilities and odds are tilt in favor of a bullish tendency for the rest of the week.
  3. The negative close / mixed breadth setup triggered for the S&P 500 and Nasdaq (see tables above) shows a bullish indication at least concerning Wednesday’s session, but probably for the remainder of the week (or at least limited downside potential) .

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

Advertisements

Filed under: Daily Update

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Twitter Updates

  • w/ 18.30 at time of writing, the gap between $VIX and $VSTOXX is close to its all time closing low of 19.90, posted on 10/16/2008. 1 year ago
  • The $VIX gained 48.33% over the course of the last week. Since 1/2/1990 there were 38 other occurences w/ $VIX gained > 48% over 5 sessions. 1 year ago
  • On Friday iShares MSCI Brazil Capped ( $EWZ ) closed at 19.09 , a 11+ year low and its lowest level since 11/08/2004. 1 year ago
  • On Friday the Russell 2000 Index ( $RUT ) closed at 1,046.20 , a 2+ year low and its lowest level since 10/09/2013. 1 year ago
  • @QuantStratTradR Sorry, I didn't follow the entire communication. Link to what ? // @easyvolatility 2 years ago

DISCLAIMER

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.

The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website, including the information that others post here.

While every effort will be made to provide complete, the most accurate and current information, none of the information on this site is guaranteed to be correct, and anything written here should be subject to independent verification. I make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to this blog or the information, analysis, statistics, or related graphics contained on the blog for any purpose.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

Please read the full ... DISCLAIMER

Calendar

April 2009
M T W T F S S
« Mar   May »
 12345
6789101112
13141516171819
20212223242526
27282930  
%d bloggers like this: