Looking for Tomorrow's edge...

Friday's close was spectacular.  That last 30 minute move was over 1%  and that was on a day which was just bouncing around from lower to unchanged.  There is a lot of talk around the blogsphere and newsletters as what to make of the move.  I went to the numbers.  How many times has the SPX move 1% higher in last 30 minutes of trading?  In the last 20 years including our recent Friday, the number is 49.  So that is pretty special, in 20 years the market has made a 1% positive move in the last 30 minutes  less than 50 times.  There are entire years where there is no move like this.

The real question is: How did the market perform after such a move?

The following chart sums up the data:

 

Tx represents the delta days beyond the close, so T1 would be the day after the 1% 30 minute positive up close day.  T5 is exactly 1 week later.  The %Close is the close on the delta day compared to the the final close from the 1% day.  % Day lower close is the percentage of a lower close on that day, the Standard Deviation number is for the % Close number. The last line filters out from the 48  closes to find only those that spiked on Fridays.  There were 8 Friday's in the last 20 years where the last 30 minute bar was more than 1% from open to close.  The "NL" column represents the low price for the next day.

What does the data tell us?  Let's just focus on Monday since that is our target (T1).  We have a 57.45% chance that the market will close lower than on Friday, on average that close will be -0.27% lower than Friday's close.. that would put the close at  916.66.  Looking at the "Friday only data" paints a different story.  The 8 times that the SPX has move 1% up in the final 30 minutes of trading on a Friday, the following Monday's closed up 1.32% on average!  What skews the Friday data is the 11/21/2008 Friday move.  That day looked very much like the  Friday we are currently studying:

11/21/2008

5/29/2009

 

It makes one curious to find out what happened on the next trading day on Monday 11/24 :

It was a continuation day, the rally continued right where it left off on Friday.  It ended closing up 6.47% higher!  Now to be fair, that Friday's closing bar was a 3% bar and we didn't take off quite that strongly this Friday.  If I remove 11/24 as an outlier, we are still .59% higher on the Monday closes when Friday's closing bars are greater than 1%.  So while in general a 1% closing bar is bearish for the next day, when they happen on Friday's they are quite bullish.

 

Conclusion:

The data is somewhat contradictory.  I was expecting before I started the research to find Monday's to be weak, but am surprised to find just the opposite.  I will be watching that first 30 minutes for strength, a higher 30 minute close could be indicating a trend up day for which I will enter long and attempt to ride the wave up.  If I detect weakness  after the first 30 minutes, I will doubt that 1% Friday close and trade as the non-Friday data indicates, expecting the SPX to to be -1.72% down sometime during the day.  I think on Monday we need to be prepared for anything.

Happy Trading!

-rlt

 

If you want to see the raw data and copy it to your own spreadsheet, the data is available here:

SPX up 1% in last 30 minute bar