TRADING THE ODDS

OpEx and Index Highs

TradingTheOdds — Sat, 18 Feb 2012 19:19:26 +0000

The expected (see OpEx Week and Multi-Month High) short-term pullback took two days only, and the SPY (S&P 500 SPDR) closed out February’s option expiration week with a streak of three consecutive sessions where a new trailing 1-year(+) high price has been made (or matched) during the session.

But historically February’s option expiration shows a remarkable tendency for major market indices to reverse course over the remainder of the month in the event the S&P 500 had either closed at a new trailing 1-month(+) high at least once during February’s option expiration week (Table I), or option expiration marked the third (or more) consecutive sessions where (concerning the SPY) a new trailing 1-month high price has been made (or matched) during the session (Table II) in the past.

Table I below shows the S&P 500′s performance (cumulative returns) 1 to 3 days and 1 week later, followed by the performance over the remainder of the month, in the event the S&P 500 had closed at a new 1-month(+) high at least once during February’s option expiration week in the past, assumed one went long on close of the session where the new high had been made.

The S&P 500 posted at least one lower close below the trigger day’s close (in this event the S&P 500′s close on 02/16/2012) until the end of the month on 16 out of 17 occurrences, and had never closed up 1.0%+ 1 to 3 days later on all 17 occurrences. In addition, the S&P 500 closed at a lower level at the end of February in 13 out of 17 years, significantly worse than the at-any-time chances for closing higher/lower approximately 2 weeks later.

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Table I
S&P 500 at a new 1-month high during February’s OpEx week

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Furthermore Friday’s option expiration marked the third consecutive sessions where a new trailing 1-year(+) high price has been made (or matched) during the session. Table II below shows the SPY‘s performance (cumulative returns) 1 to 3 days and 1 week later, followed by the performance over the remainder of the month, in the event this setup had been triggered in the past.

The SPY had closed lower the next day (in this event on Tuesday, February 21) on 14 out of 17 occurrences, and posted at least 1 lower close one or two days later on all 17 occurrences. Additionally, the SPY had never closed up 1.0%+ one week later, but lower -1.0%+ on 7 occurrences.

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Table II
SPY with 3 consecutive trailing 1-month intraday highs on OpEx

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Conclusion(s)

If OpEx history gives guidance, upside potential over the next couple of days will probably be limited, and a short-term pullback seems likely …

Have a profitable week,

Frank

Disclosure: No position in the securities mentioned in this post at time of writing.

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Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets). Index data (e.g. S&P 500 cash index) does not account for dividend and cash payments.

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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. 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(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

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.

(Data courtesy of MetaStock and Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

OpEx Week and Multi-Month High

TradingTheOdds — Mon, 13 Feb 2012 19:50:25 +0000

At time of writing (2:36 pm ET) the SPY (S&P 500 SPDR) is up +0.77% and on the verge of closing at a fresh traling 1 year high.

When the SPY had closed higher ≥ 0.50% at a fresh 3 (or more) months high on the first session of option expiration week (regularly a Monday) in the past, this had been indicative of limited upside potential over the next couple of sessions.

Table I below shows the SPY‘s performance (cumulative returns) over the remainder of OpEx week in the event the setup mentioned before had been triggered in the past.

The SPY had never been up 1.0%+ 1, 2 and 3 session later (up 1.0%+ on OpEx – 4 days later – on 4 occurrences), but closed lower -1.0% 3 days later on 11 out of 23 occurrences. In addition, the SPY did not manage at least 1 higher close over the remainder of the week on 10 out of 23 occurrences (means the close on Monday marked the top for the remainder of OpEx week).

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Table I
SPY at 3 months high on 1st session of OpEx week

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Conclusion(s)

A short-term pullback over the next couple of days seems likely …

Have a profitable week,

Frank

Disclosure: No position in the securities mentioned in this post at time of writing.

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Disclaimer

(Data courtesy of MetaStock and Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

A Virtually Non-Existent Drawdown

TradingTheOdds — Thu, 09 Feb 2012 16:16:21 +0000

Major market indices worldwide are in rally mode, although US markets are likely to take a short-term breather (probably today) after this big surge. But any breather (or even a setback) may be short-lived (again).

Besides the fact that the SPY (S&P 500 SPDR) is up +5.86% over the trailing month and +7.72% year-to-date, the SPY not only hasn’t had been down -1.0% over the trailing week over a period of 28 sessions now (means the SPY had never been down -1.0% compared to the session one week before), but hasn’t closed -1.0% below the trailing weekly high as well (which is quite a difference, because it means that the drawdown over the trailing week has never exceeded 1.0%) – a virtually non-existent drawdown.

Historically, when the SPY hasn’t closed -1.0% below the trailing weekly high (drawdown over the trailing week < 1.0%) for 28 (or more) sessions, this had intermediate- and long-term bullish implications in the past.

Table I below shows the SPY‘s performance (cumulative returns) 1 and 2 weeks later, at the end of the month, 6 months later and over the remainder of the year in the event the setup mentioned before had been triggered in the past.

The SPY had closed at an even higher level one week later on 14 out of 19 occurrences (or 75% of the time), up 1.0%+ on 8 occurrences, but had never been down -1.0%+. And the trend over the remainder of the year has almost always been up as well, with the xxx closing at a highe level 2 weeks later, at the end of the month, 6 months later and at the end of the year on at least 15 out of 19 occurrences (closing lower -1.0% at the end of the month and at the end of the year only once).

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Table I
SPY with virtually no drawdown for 28+ days

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Conclusion(s)

I don’t want to sound like a broken record, but at least for the time being the path of least resistance remains up.

Have a profitable week,

Frank

Disclosure: No position in the securities mentioned in this post at time of writing.

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Disclaimer

(Data courtesy of MetaStock and Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

Employment Situation

TradingTheOdds — Mon, 06 Feb 2012 21:01:03 +0000

On Friday’s non-farm payroll release day, unemployment rate had been reported to have fallen from 8.5% to 8.3%, its lowest level in three years, and down on the 5th consecutive month. As is known, the S&P 500 had closed at a fresh 6-month high following January’s positive non-farm payroll report, up 1.46% for the day.

Historically, when the S&P 500 had gained ≥ 0.50% on a non-farm payroll release day when the unemployment rate had been above 6.0%, but down from its level three months earlier (a positive surprise on high levels), this had intermediate–term bullish implications in the past.

Table I below shows the S&P 500′s performance (cumulative returns) 1 week as well as 1 to 3 months later, followed by the number of sessions until the S&P 500 had posted a higher close in the event (all at the same time) the S&P 500 had gained ≥ 0.50% on a non-farm payroll release day when the unemployment rate had been above 6.0%, but down from its level three months earlier.

The S&P 500 had closed at a higher level one week later on 22 out of 28 occurrences (down -1.0%+ only once), one month later on 20, two months later on 25 and three months later on 24 out of 28 occurrences, and posted at least one higher close over the course of the then following week (5 sessions) on 25 out of 28 occurrences (and 3 weeks later latest on all 28 occurrences).

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Table I
S&P 500 up on non-farm payroll release day (positive surprise)

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Conclusion(s)

Even fundamental news are suggesting that the market will probably remain on firm path over the course of the next couple of months.

Have a profitable week,

Frank

Disclosure: No position in the securities mentioned in this post at time of writing.

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Disclaimer

(Data courtesy of MetaStock and Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

Gaps, Highs and Bollinger Band

TradingTheOdds — Mon, 06 Feb 2012 10:21:25 +0000

The SPY‘s (S&P 500 SPDR) had closed at a fresh 6-month high on Friday, February 3, 2012, and – with respect to technical analysis – looks ”overbought” (a 5.0%+ run-up over the trailing month, 2-day RSI > 97.50, a full gap up > 0.50%, a close above its upper Bollinger Band, …).

But ”overbought” does not necessarily suggest that a favorable shorting oppotunity may be provided, leave alone that a short- or intermediate-term has been reached.

Table I below shows the SPY‘s performance (cumulative returns) 2 days and 3 months later, at the end of the year (’at year’s end’), followed by the number of sessions until the SPY posted a(nother) higher close, and finally the number of sessions until the gap had been filled in the event (all at the same time) the SPY‘s (S&P 500 SPDR)

left a full gap up (today’s low above previous session’s high), and
closed above its upper (20,2) Bollinger Band (20-day moving average, 2 standard deviations), and
had closed at a 6-month high.

Although upside potential had been limited over the short-term (the SPY had never been up 1.0%+ one and two session later), chances for a(nother) higher close 2 days later are still significantly better (16 : 7, ~70%) than the market’s at-any-time chances for a higher close two days later (54.44%).

The SPY had closed at a higher level at least once over the course of the then following three sessions on 21 out of 23 occurrences, and had closed at a higher level 3 months later on 20 out of 23 occurrences (or 87% of the time), significantly greater than the 68% random chance for a higher close 3 months later. In addition, the SPY had closed out the rest of the year with a gain in all years except 2011 (in 12 out of 13 years).

And last but not least, the gap had been filled before the SPY had posted a(nother) higher close on only 2 out of 23 occurrences (12/01/2003, 02/04/1993; on 09/15/2006 the gap had been filled intraday, but the SPY posted a higher close). Therefore a close above Friday’s close before the gap will (eventually) be filled seems to be much more likely than vice versa.

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Table I
SPY at 6-month high, above (20,2) Boll. Band w/ full gap up

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Conclusion(s)

It appears quite likely that any short-term weakness before the open (GLOBEX) or during Monday’s (February 6, 2012) regular session might provide a favorable short-term buying opportunity targeting a close above Friday’s close during the remainder of the week.

Have a profitable week,

Frank

Disclosure: No position in the securities mentioned in this post at time of writing.

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Disclaimer

(Data courtesy of MetaStock and Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

As (the first week of) February goes …

TradingTheOdds — Sat, 04 Feb 2012 17:39:01 +0000

Major market indices closed at another multi-month high on February 3, 2012, and the endless number of bullish setups being triggered during the last couple of weeks proofed to be right (at least up to now).

The S&P 500 closed out the first week in February with a +2.17% (weekly) gain, closed at its highest level since July 22, 2011, at the same time up +6.94% year-to-date, and up +5.31% over the trailing month.

Although a couple of setups triggered on close of Friday’s session are indicating that upside potential may be limited over the course of the next two to three of days (e.g. 6-month high on Nonfarm Payroll release day w/ gap up, the S&P 500 and the SPY‘s (S&P 500 SPDR) closed more than 2 standard deviations above their upper Bollinger Bands, …), historical precedences are suggesting that any potential short-term weakness may be short-lived.

Table I below shows the S&P 500′ performance (cumulative returns) 1 week later, at the end of May (’3 month(s) later (EoM)’), at the end of September (’7 month(s) later (EoM)’) and at the end of the year (’at year’s end’) in the event

the S&P 500 was up ≥ 5.00% year-to-date (triggered on 02/01/2012), or
the S&P 500 was up ≥ 5.00% over the trailing month and closed at a 6-month high (triggered on 02/03/2012)

at any time during the first week in February.

Results are quite impressive. The S&P 500 closed at an even higher level

1 week later in 3 out of every 4 occurrences (years),
at the end of May in 16 out of 19 years,
at the end of September in all 19 years, and
at the end of the year in 18 out of 19 years.

In addition, between the trigger day and the final session of the respective year, the S&P 500 closed above the trigger day’s close on (almost) 9 out of every 10 sessions (or on average 88.33% of the time).

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Table I
S&P 500 rallies right at the start of the year

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Conclusion(s)

It appears quite likely that – taking into account these minor adjustments to the so-called January Barometer (“As January goes, so goes the (rest of the) year”) – the S&P 500 will continue moving higher over the remainder of the year.

Have a profitable week,

Frank

Disclosure: No position in the securities mentioned in this post at time of writing.

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Disclaimer

(Data courtesy of MetaStock and Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

Highs | Lows and Fed Days

TradingTheOdds — Fri, 27 Jan 2012 08:44:12 +0000

Major market indices closed at multi-month highs on January 25, 2012 (FOMC announcement session), followed by a (small) pullback on the then following (yesterday’s) session.

Looking at historical precedences when the SPY‘s (S&P 500 SPDR) had closed either at a 30-day high or low on an FOMC announcement session, followed by a lower close immediately thereafter, this had significantly positive implications over the course of the next couple of weeks.

Table I below shows the SPY‘s (S&P 500 SPDR) performance (cumulative returns) 1 day and 4 days later, at the end of the then following week (in this event on Friday, February 3), 2 weeks later (end-of-week), and at the end of the respective month in the event the SPY had closed either at a 30-day high or low on an FOMC announcement session, followed by a lower close immediately thereafter in the past.

Although returns the next day (in this event on Friday, January 27) had been mixed (notably a 1:6 ratio in favor of -1.0%+ moves on the downside), the SPY had closed at a higher level 4 days later, at the end of the then following week and 2 weeks later (end-of-week) on 17 | 18 | 19 out of 20 occurrences (with 1.0%+ moves on the upsides outnumbering -1.0%+ moves on the downside by an extraordinary wide margin), and had never closed lower -1.0%+ at the end of the month, but higher +1.0% on 16 out of 20 occurrences.

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Table I
SPY at 30-day high or low on FOMC announcement session. down thereafter

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Conclusion(s)

For the time being, the trend most probably remains up, and lower prices (intraday or end-of-day) on Friday, January 27 might provide a favorable intermediate-term buying opportunity.

Have a profitable week,

Frank

Disclosure: No position in the securities mentioned in this post at time of writing.

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Disclaimer

(Data courtesy of MetaStock and Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

Multi-Month High on FOMC Session

TradingTheOdds — Thu, 26 Jan 2012 06:26:35 +0000

Compliant to historical probabilities and odds, major market indices advanced (again) in response to the FED’s decision to leave rates unchanged for the foreseeable future.

S&P 500 and the SPY‘s (S&P 500 SPDR) closed at a 5-month high (and missed a 6-month high by a single day only; the last time the SPY closed this high was on July 26, 2011), while the Nasdaq 100 index closed at its highest level since February 6, 2001.

Historically, when the SPY had closed at a multi-month high on an FOMC announcement session in the past, this had regularly not been a top, leave alone the top.

Table I below shows the SPY‘s (S&P 500 SPDR) performance (cumulative returns) over the course of the then following week in the event the SPY had closed at an at least 5-month high on an FOMC announcement session in the past.

The SPY posted at least one higher close over the course of the then following week on all 24 previous occurrences, closed at an even higher level one week later on 4 out of every 5 occurrences (or almost 80% of the time), and 1.0%+ moves on the upside outnumbered -1.0%+ moves on the downside by a very wide margin (only one -1.0%+ loss 1, 3 and 4 days later).

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Table I
SPY at 5-month high on FOMC announcement session

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Conclusion(s)

For the time being, the trend most probably remains up …

Have a profitable week,

Frank

Disclosure: No position in the securities mentioned in this post at time of writing.

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Disclaimer

(Data courtesy of MetaStock and Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

Long Streaks of Not Losing

TradingTheOdds — Tue, 24 Jan 2012 21:41:32 +0000

Today marked the 17th consecutive session where the SPY‘s (S&P 500 SPDR) hasn’t lost more than -0.52% on a close to close basis (besides the fact that this is the 2nd lower close only during the last 11 sessions).

Historically, comparable streaks were regularly indicative of higher prices ahead.

Table I below shows the SPY‘s (S&P 500 SPDR) performance (cumulative returns) one, two, and three sessions, 1 week, 1 month later, and by the time the SPY posted its first lower close in excess of -0.55% in the event the SPY hadn’t lost -0.52% on a close to close basis for 17 or more trading days (for the first time in a two weeks time frame, means only the first occurrence during a 10 day time frame has been accounted for).

The SPY closed at an even higher level two days, three days, 1 week and 1 month later (on 17 out of the last 18 occurrences), and at the end of the month as well on 3 (or more) out of every 4 occurrences, and 1.0%+ moves on the upside outnumbered -1.0%+ moves on the downside by a very wide margin.

In addition, the SPY had never lost 1.0% on the then following session (in this event on Wednesday, January 25), and by the time the SPY lost -0.55% ending the then current streak, the index had closed more often on a (significantly) higher level (22x above the trigger day, 15x below the trigger day, and 11 : 3 closes up 1.0%+ vs. down -1.0%+).

(click on image to enlarge)

Table I
SPY did not loose -0.52% on the close on 17+ consecutive sessions

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Conclusion(s)

For the time being, shorting the market most probably remains a receipt for disaster (and Wednesday will be an FOMC announcement session, another positive seasonality).

Have a profitable week,

Frank

Disclosure: No position in the securities mentioned in this post at time of writing.

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Disclaimer

(Data courtesy of MetaStock and Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

Complacency at Multi-Month High

TradingTheOdds — Sun, 22 Jan 2012 20:25:43 +0000

Besides the fact that even betting on a one-day decline (leave alone calling a top) has been a receipt for disaster during 2012 (so far), complacency has set in (again) among retail investors.

On Friday, January 20, the VXO (CBOE S&P 100® Volatility Index) closed at a 6-month low, and the (annualized) 10-day historical (realized) volatility is close to a 9-month low.

Whilst some blog authors and websites are suggesting to stay alert, or that a top might be in, a far better (compared to betting on a stock market top) opportunity might be presented due to the fact that for a couple of years now a bunch of (leveraged) Volatility ETFs are available to the retail investor (complementary to CBOE volatility futures and options).

Table I below shows the VXO (CBOE S&P 100® Volatility Index) performance (since 1986) one week later, at the end of January (′at month’s end′), one month, two months and five months later in the event the VXO had not been this complacent over a 6-month period in January of a year (means the VXO had closed at a fresh 6-month low) in the past.

Volatility (realized and implied) almost always picked up shortly again (partly tremendously), and the VXO closed at a higher level one week later on 17 out of 18 occurrences, was up 1.0%+ at the end of January and one month later on all 18 occurrences, and higher 5 month later on 17 out of 18 occurrences as well.

(click on image to enlarge)

Table I
VXO (CBOE S&P 100® Volatility Index) posted a 6-month low in January

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Table II below shows the first occurrence (per year only). The VXO hit a 6-month low in January for the 10th time since 1986, and was always trading 10.0%+ above January’s 6-month low at some time during the then following month.

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Table II
VXO (CBOE S&P 100® Volatility Index) posted a 6-month low in January

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Conclusion(s)

January’s 6-month low with respect to the VXO (CBOE S&P 100® Volatility Index) might provide a favorable opportunity betting on implied (and historical) volatility picking up (possibly tremendously) over the course of the next couple of weeks and months.

Have a profitable week,

Frank

Disclosure: No position in the securities mentioned in this post at time of writing.

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Disclaimer

(Data courtesy of MetaStock and Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)