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.

Follow-up on Trading the Odds on Thursday – May 21, 2009

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This is a follow-up on my previous post Trading the Odds on Thursday – May 21, 2009.

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I received an excellent and very legitimate comment concerning the reliability of the SPX’ opening quotations, especially with respect to the assessment that the SPX shows an above-average tendeny to close above the open after Wednesday’s setups had been triggered in the past.

Due to the fact that the reversal setup where the SPX had posted a high at least +1.50% above the previous session’s close, but finally closed lower on the day showed a much higher volatility on the then following session, I primarily checked for this setup utilizing the SPY instead of the SPX first.

The table below shows the SPY‘s intraday performance (including the summary) (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 21) immediately following those sessions where the SPY had posted a high at least +1.50% above the previous session’s close, but finally closed lower on the day:

20090520-SPX-8

Since 01/29/1993 (first trading session for the SPY) there were 34 occurrences (SPX 30), but the respective assessment remains almost unchanged in comparison to the SPX:

The SPY left an unfilled opening gap on the downside on 6 (SPX  8) out of those 34 occurrences where this setup had been triggered (means the SPY never posted a high above the previous session’s close on the next session), and an unfilled gap on the upside on 6 (SPX  5) out of those 30 occurrences (means the SPY never posted a low below the previous session’s close on the next session), but the profit factor now only slightly exceeds the respective at-any-time profit factor at the close and concerning the close versus open (SPX: significantly).

Both the SPY and the SPX closed higher on the last 4 occurrences, and the SPY closed higher on 8 out of the last 10 occurrences, and closed above the open on 8 out of the last 10 occurrences as well.

It is notable as well that the outcome of the ‘reversal setup’ seems highly dependable on the then current bullish or bearish period for the market. Those occurrences between June and the beginning of October 2008 showed a significant bearish tendency, while those occurrences since the end of October 2008 showed a bullish tendency at the close.

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Bottom line:

  1. From my perspective the outlook for Thursday’s session and the remainder of the week is still positive (see my post Trading the Odds on Monday – May 18, 2009), not only based on the setup triggered on close of option expiration week, but based on Wednesday’ setups as well even utilizing the SPY instead of the SPX. Especially any weakness on Thursday’s opening may probably provide a short-term and intraday buying opportunity with respect to the SPX’s and SPY’s recent historical tendency to close higher on the close, and above the respective opening quotation as well.

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.

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