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Time of Day Tendencies in the S&P 500 | SMB Training

🚨🚨🚨Time of Day Tendencies in the S&P 500:

3AM (New York time):  One reason we need to use futures and not SPY is that Europe actually trades our futures fairly actively when their markets open. Most major European markets open around 3AM so the first thing I look at in the morning is the price action around 3AM. This often sets a key inflection point for the day, as our futures will tend to lock into European market direction and follow them in our overnight session.

I will also look at the rest of the overnight for significant levels, but the key word is significant. If you have to really look and think about it, it’s not significant. If you see a level that is hit 6 times and holds with only a one-tick drop in the futures, that level just might be important later today, no?

8:30AM: sometimes an inflection point but purely driven by economic numbers. If no report, then this is probably not a significant time. There are releases at other times, but they have enough of an impact to make those typical inflection points. At any rate, this is a minor inflection point. (Note that pit sessions for US Bond futures open at 8:20AM. This used to be more of an inflection point, but I don’t see it so much in recent years.)

9:30AM: obvious inflection point and the study of patterns around the opening is a whole book in itself.

10:00AM: same as 8:30. This has been an inflection point, but primarily because of the number of significant economic reports released around this time.

11:30AM: European markets close. If our markets have staged a major reversal to the European session (eg. Europe was up overnight, we trade up on the open and then collapse into downtrend), this time of day can be very interesting as European traders scramble to cover a lot of their positions on their close. This is more of an influence than it was five years ago, but do not expect it to be significant if our markets are relatively quiet on the day. Also, this inflection can be a bit of a climax, temporarily capping the morning drive at exactly the point where naive traders are expecting the start of a major move.

12:00-1:30PM: Lunchtime. This is traditionally a dead time for the markets, and it continues to be true. Much less follow through in broad indexes, and you really have to pick your spots. Depending on the kind of trading day (more on that later), we are on breakout watch near the end of this period.

2:00-2:45PM: Ideal breakout time. If the market has been rangebound, we are looking for a breakout to carry into close. If that breakout comes much before 2:00, your thought should be “this is early, maybe too early to carry into the close.” After 2:45, it’s getting a little late, but still possible. A breakout of a rangebound market that occurs in this timeframe deserves your respect–best to go with it or if you must fade, so so with the utmost care.

3:00-3:10: Countertrend inflection. This used to be related to the bond pits closing (and maybe it still is), but if we are in a good trend there will often be a pretty dramatic countertrend inflection right around 3:00 PM. This move will be big enough to shake out weak trend followers, so you need a plan.

3:00-Close: I follow a simple rule: Do not fade a last hour trend, especially if confirmed by NYSE ticks and multiple broad indexes. There is a lot of latitude for different trading styles, but I believe anyone looking to fade a strong last hour trend is making a critical mistake because some of the best market tendencies are for last hour follow through. If you have been trading for a while and weren’t aware of that you probably need to re-think your market study process. At any rate, one of my very few hard and fast trading rules is “do not fade a last hour trend.”

4:00-4:15. This is a very interesting time when indexes are open, futures are open, but the cash market is closed. Sometimes you can see a real resolution of moves as pressure comes off the market and you get good trends in this time. Be careful because many ETF products are not as liquid as you might think in this time.