Thursday, July 02, 2009

Fascinating Finding: Shifting Opportunity in the Stock Market

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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