How much movement can we expect in the U.S. stock market (S&P 500 Index; SPY) during the day session, and how much movement can we expect overnight?
It turns out that the ratio of day movement to overnight movement has been shifting over time. I haven't seen this reported elsewhere, but it's been striking to those of us who follow markets both during U.S. day sessions and overnight.
During 2007, the median absolute change from open to close was .61%; the median absolute change from the prior day's close to the current day's open was .37%. Day movement exceeded overnight movement by about 63%.
2008 was a more volatile year, so we saw more absolute movement during both time segments. The median absolute change from open to close was 1.06%; the median absolute change from the prior day's close to the current day's open was .58%. Day movement exceeded overnight movement by about 83%.
2009, however, has given us a different look. The median absolute change from open to close has been .93%; the median absolute change from the previous day's close to the current day's open has been .86%. Day movement has only exceeded overnight movement by about 9%.
Stated otherwise, we've seen less movement during the day session from 2008 to 2009, but more movement overnight.
What that may tell us is that many U.S. market moves are occurring either in response to market movements overseas and/or in response to pre-opening economic releases. In terms of opportunity as a function of pure market movement, we've seen as much occurring between sessions as during them.
Note: See my follow up to this post.
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5 comments:
yes, swing trading has pretty much become russian roulette as of late.
And therefor it is especially nice to trade in Europe :-)
Cheers,
Markus
P.S.
Just a guess: some people will come here and blame market manipulation for the phenomena (the GS bunch e.g. ;-)for it.
This explains the increase in the frequency of opening gaps and my reluctance to carry trades over night. It is always great to have someone who can put a yard stick on these types of developments...It really helps to Quantify how traders can react to a major global shift. This give me confidence to know this is becoming part of the NEW NORM. I can trade that....
It must suck to be a day trading punter.
I'm sure the world weeps for them, as it does the mortgage brokers, investment bankers, and the other shell gamers.
Eric,
not sure what you imply with that, but for a day trader nothing is more rewarding than a range-bound market trading in a clear channel.
Risk is minimized, while rewards are nearly 100% guaranteed. Just think of the calm state of mind you can trade in knowing that the trade you just took will give you a profit eventually. Actually if the trade goes against you, you can calmly add to the position as the market will bounce again and give you an even greater profit.
No, for me a range bound market is a dream come true. It's the type of market you can trade positions without taking huge risks.
Trend days are the ones I fear, as these are not the norm, as they work through all the usual support or resistance lines, I'm used to respect and trade on.
Do some research, Brett has written some articles on the subject and you will find, that the observation he just made is the same he made two or three years back, when the S&P was barely moving directionally during the day.
This 2007 article about the Psychology of investing has a better description of what I'm trying to tell you here.
Best regards,
Chris
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