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Frank Hogelucht

Frank Hogelucht

Individual investor, trading for a living since 2007, taking a statistical approach in combination with historical market data and addicted to developing market-neutral algorithmic trading…

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The Infinite Improbability Drive

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www.CartoonStock.com

It seems as if major market indices are currently powered by the famous Infinite Improbability Drive (the Heart of Gold in Douglas Adam's 'The Hitchhiker's Guide To The Galaxy' novels); the improbable odds against closing higher (on a session with mostly disastrous market internals) being two raised to the power of the Islington (London) flat phone number (2079460347) where Arthur had met Tricia McMillan.

Besides the fact that NYSE Adv./Decl. Volume closed at 0.5325, and S&P 500 Adv./Decl. Volume closed at 0.4553 (volume in declining stocks more than doubled volume in advancing stocks), it was especially the (significantly lopsided) negative NYSE TICK data which caught my eye. A TICK is the number of NYSE stocks traded on an uptick vs. (minus) stocks traded on a downtick ; extreme TICK readings (e.g. < -1,000 and/or > +1,000) often indicate the presence of institutional buy or sell programs or heavy short covering on extreme positive readings.

Table I below shows NYSE TICK statistics for the session on Friday, October 15, 2010, divided into the total number of 1-minute lows below -1,000 , -750 , -500 and 1-minute highs above +1,000, +750, +500, during the first hour, during the main session (from the end of the first hour until the start of the last hour) and during the last hour of the session.

 

NYSE TICK # 1-min Lows # 1-min Highs
Time of Day < -1,000 < - 750 < - 500 > +1,000 > + 750 > + 500
First Hour 7 19 32 0 0 1
Main Session 11 35 67 3 16 49
Last Hour 0 2 19 0 1 14

 

You might notice at first glance that the total number of 1-minute lows always exceeded the respective total number of 1-minute highs during every part of the session (first hour, main part and last hour), e.g. 11 1-minute lows below -1,000 vs 3 1-minute highs during the main session, and there was not a single reading above +750 during the first hour of the session (in contrast to 7 1-minute lows below -1,000, reflecting heavy selling pressure right after the start of Friday's session).

Table II below shows the regular outcome of those sessions where market internals - in this event NYSE TICK data - where heavily skewed (on the negative side), means where the total number of 1-minute lows always exceeded the respective total number of 1-minute highs during every part of the session (first hour, main part and last hour) in the past (listed are the last 79 occurrences and the SPY's historical performance over the course of the then following 1, 2, 3, 4 and 5 sessions, assumed one went long on close the day before).


(* the SPY closed higher despite negative NYSE TICK data)

Out of 132 occurrences since 2000, the SPY closed higher on (only) 8 (as of Friday, October 15) and lower on 124 occurrences, with a median trade of -2.07% (!!). In addition, the SPY closed on a lower level 3 sessions later (in this event Tuesday, October 19, assumed one went long on Thursday, October 14) on 4 out of every 5 occurrences (or 81.92% of the time).

But what happened on those occurrences where the SPY defied all probabilities and odds (means despite negative NYSE TICK data) and closed higher in the past ?

Table III below shows those occurrences and the SPY's historical performance over the course of the then following 1, 2, 3, 4 and 5 sessions, assumed one went long on close of a session where the total number of 1-minute lows always exceeded the respective total number of 1-minute highs during every part of the session (first hour, main part and last hour) in the past, and the SPY did not loose more than -0.50% on the same day (in order to increase the sample size, and bearing in mind that the DOW lost -0.40% on Friday's session).


(* no close below trigger day's close during next 5 sessions)

Especially noteworthy are the following pattern:

  • the SPY closed on a lower level at least once over the course of the then following 5 sessions on all of those up to now 13 occurrences,
  • the SPY closed on a lower level latest 3 sessions later on all of those 13 occurrences,
  • the SPY was trading higher at least 1.0% or more 3 sessions later on 2, but lower at least -1.0% on 7 occurrences, and finally
  • (not listed) the SPY was trading higher 2 and 3 weeks later on only 1 out of every 4 occurrences (or 23.08% of the time).


Conclusions:

I history gives guidance, sellers will probably show up again early next week, and probabilities and odds are heavily tilt in favor of at least one lower close below Friday's (October 15, 2010) close latest on Wednesday, October 20.

Successful trading,

 

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