Despite slight crosscurrents in related markets, the S&P looks like a solid sell for Friday. There will be a supposedly important report released before the 8:30 open, so you may get a gap opening several points higher or lower than the previous close. Actually, the best scenario would be to see a sharply higher open, which then stalls. Those scenarios are famous for reversing into the close.
The indexes have been overbought, which means theyââ,¬â"¢ve been on a relentless upward push, much to the confoundment of the bears. There havenââ,¬â"¢t been many Fridays in recent years that have seen sharp downmoves, particularly into the close. In the pre-90's bubble, one could do well shorting the Friday opening and then buying it back on the close. That tendency has been a casualty of market drift. I donââ,¬â"¢t know why the scene has changed, although I suppose one could speculate that the bigger proportion of program traders verses mom and pop traders means that fear of holding longs over a weekend is less a factor these days. At any rate, Iââ,¬â"¢ll offer no grandiose predictions about whether or not we could see a huge down move on Friday in the face of relentless upmoves. Iââ,¬â"¢ll only reiterate that the S&P numbers are bearish in all three signal categories, and we just entered the short-friendly day of the month timeframe.
Either-Or Biases
The first set of biases includes six biases that individually signal either long or short on a daily basis, except for the rare tie. Each bias has a +1 value for long bias, and a -1 for short. The bottom line is the sum total, which can range from -6 to 6. Positive totals are bullish; negative are bearish. For bullish signals (opposite is bearish):
- The 2-day average is below the 5-day average.
- The close is above the 40-day average.
- The highest close of the last 50 days occurs before the lowest close of the last 50 days.
- The day's trading range is smaller than the 10-day average range and the day's close is higher than the 10-day average close OR the day's range is larger than the 10-day average range and the close is lower than the 10-day average close.
- The close is above the midpoint of the average 15-day range. (The 15-day high average plus the 15-day low average divided by 2.)
- Fade the majority direction of the last three open-to-closes.
Infrequent Biases
The five infrequent biases are listed below. For bullish signals (opposite is bearish):
- Four successively higher closes were followed by yesterday's down close. Today's action was irrelevant.
- Five successively lower closes were followed by today's up close.
- CUP trade. For the last three trading days, the middle day had both the lowest low and the lowest close. In addition, the low on the middle day must also be lower than the lows from the previous three trading days before the middle day. (CAP is the reverse and bearish.)
- The highest low minus the lowest low of the last three days is less than or equal to 20% of the highest high minus the lowest low of the last three days.
- For the previous two days, the market closed lower than it opened.
Calendar Biases
The calendar biases in the indexes are listed below. For a more in-depth explanation of these, click here.
Click here for the TradeStation summaries of all 14 futures biases.
DISCLAIMER: It should not be assumed that the methods, techniques, or indicators presented in this column will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented in this column are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The author, Tiger Shark Publishing LLC, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.
Art Collins is the author of Market Beaters, a collection of interviews with renowned mechanical traders. Much of Art's TigerSharkTrading.com material will be expanded upon in his upcoming book that is scheduled to be released later this year. E-mail him at artcollins@ameritech.net.
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