posted
Over the years you will hear a lot of clichés about the market and one of them says "the open is for
amateurs and the the close is for Pro's". Well there is some truth to that. For the most part, the
first 20 minutes of the trading day is full of wild swings where market makers are filling overnight
market orders (where they want to fill them by the way!) while people who are looking at a "gap"
opening are trying to get out. So it is indeed an interesting tug of war between people trying to
get in and others trying to get their profits out. But in general terms the craziness subsides
somewhere before 10:30 am Eastern and then stocks move a bit more realistically.
But we often see other things happen that are really interesting and you can almost base them on the clock. Once we get past the 10:30 area, we often see some wild movements right around the 1pm area, and then we also see some volatility at the 3pm area.
Did you ever wonder what was going on at those times? Well as "deep" as you can make it seem, the
real answer is that the times coincide with lunch! Don't laugh yet, it's for real. For instance
let's say you work a trading desk at the NYSE. You go out for lunch at about noon and over a roast
beef sandwich and a soda, you are talking to "fellow" traders about the overall direction of the
day. Is it possible that when you come back to work at 1, you may want to buy some stock if the
feeling was good? Is it possible that the lunch period brought a bunch of nervous traders together
and they scared you a bit? Is it possible you may want to sell some stock when you hit the floor
again? Yes, it is and although you may be thinking "it can't be that easy" it certainly is. Watch
the market moves at the 1pm time slot and you will indeed see some increased volatility.
The same thing happens at about 2:45 to 3:00 pm. Why? Guess when the west coast traders are going to
lunch out there? Right! With a 3 hour time delay, office workers that are just hitting lunch time
are flooding to their telephones and computers to make some trades. So sure enough watch the "tape"
at that time slot and you will see an increase in activity. As much as television shows everyone
trading every second of every day, the fact is that lunch time is the time of the day when most
people who want to "do something" actually get the time to do it.
The last half hour of the trading day is indeed where the market pro's are doing their best work.
Funds that want to buy generally do it during that time slot and last minute buy/sell imbalances
have to get straightened out. If the order flow is positive, we can often see some huge moves in
that last 30 minutes. (Likewise if the day has been lousy and they are nervous, they can really
accelerate the selling). Remember you can often take your queues about the next day's action from
the close of the previous day. If we rally hard into the close, it's probable that we will open
strong the next morning. If we tank in the last half hour, you can almost bet the next morning will
either gap down, or it will rise for a few minutes and then fall apart. Quite a few traders make
their "day trades" based on the last 20 minutes. If we are running into the close, it is a pretty
good bet the the leaders will gap up a bit in the morning and you can sell into that gap with a nice
little profit.
For most of you who aren't hard core day traders, it would be best to buy your stocks in the "quiet
periods" of the day. For instance if you want to buy XYZ, take a look at it during the 10:30 to
11:30 time slot. If its doing well at that time, chances are good it will continue to do so for the
day. Likewise, if it is looking good after the 1 PM shake, that too is probably a decent time to get
involved. By watching the "moves" the market makes during its trading session, you can often get a
much better idea of where things are going by seeing "who's doing what" after the lunch hours! Watch this phenomenon for a few days and see what you think.
Thanks and have a good day.
[ June 13, 2005, 15:42: Message edited by: Bob Frey ]
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posted
Totally a nice thing to do. Makes great sense, although I've tried to see that whole pattern for years and everytime I think I see it, some stock defies the rules.
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