Implications of a Black Candle Today

The intraday (buying) opportunity presented yesterday on the blog (see Intraday Opportunity after a Sell-off ) played out nicely today (Thursday, November 10). S&P 500 futures were trading lower approximately -0.40% below Wednesday's close on today's GLOBEX overnight session, but turned around for a huge gap up on the open (SPY up +1.32% on the open).

The market recouped some of yesterday's losses today, but closed -0.38% below the open (a ‘black candle'), immediately following a session when the SPY (S&P 500 SPDR) closed -2.02% below the previous session's  (Tuesday's) close. This might trigger another favorable trading opportunity on tomorrow's (Friday, November 11) session (in the event of a lower open or additional weakness on the GLOBEX overnight session).

Table I below shows all historical occurrences and the SPY‘s intraday performance on the then following session (‘Effective Day‘, in this event on Friday, November 11) in the event the SPY closed lower -2.00%+ below the previous session's close (like on Wednesday, November 9), immediately followed by a black candle where the SPY closed at least -0.25% below the open (the magnitude of change – even the algebraic sign – on the close doesn't matter).

Out of 29 occurrences since 1990, the SPY was always ( Up vs. Down 29 : 0 ) trading above the previous session's close at least once during the then following regular session (and ≥ +1.0% on 20 occurrences, or almost 70% of the time). In addition, it was trading below the previous session's close at least once during the then following session on 26 out of 29 occurrences (or 90% of the time), thereof penetrating its previous session's low on 21 occurrences, the former (trading above the previous session's close) significantly better, the latter significantly worse than the market's at-any-time chances for trading highr| lower on the then following session. Respective t-scores are always significantly exceeding the +/- 1.645 mark for statistical significance (there is a very low chance that the edge on the up- and downside occured by pure chance only).

Conclusion(s): We might get some action and intraday volatility on Friday, November 11 again, and another favorable trading opportunity especially on the long side of the market might be provided on tomorrow's (Friday, November 11) session in the event of a lower open or weakness on the GLOBEX overnight session.

Successful trading,

Frank

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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).

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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 for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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