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 – June 3, 2009

WE031672-klein

__________________

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.

2009-06-02-ES-1

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).

2009-06-02-ES-1i

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.

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Filed under: Daily Update, , , , ,

One Response

  1. Jimmy says:

    Frank,

    Really appreciate that you taken time to update your blog. Guess you don’t mind making some extra Euros to indulge on more perks during your vacation. I too have habit of doing some trading while vacationing.

    Anyway, get some R and R (rest and relaxation!)

    Jimmy

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