“A great deal of creativity is about pattern recognition, and what you need to discern patterns is tons of data. Your mind collects that data by taking note of random details and anomalies easily seen every day: quirks and changes that, eventually, add up to insights.” – Margaret Heffernan
Over the past week (starting November 6th), the S&P price action has exhibited a peculiar pattern of selling off between 11am and 1pm, followed by a remarkably strong rally over the last hour of trading. This price pattern has been unusually consistent over the past week, perhaps impacted by large institutional buy order tickets into the close of the trading day. As the past week has shown some equity weakness owing to the spillover from bearish reports in the Junk Bond and High Yield Markets, the contagion has primarily impacted equity markets in the morning digesting the day’s news. This has been almost clinically followed by a rally later in the day as deeper pockets have used the drawdown as a buying opportunity.
In this study, we’ve taken time-slices of each minute of the trading day, aggregating its cumulative performance and indexing the time series to 100, representing the start of the trading day (9:30am New York). Taking inventory of each 30-minute time slice bucket, we’ve observed the average return to be 0.01% (more or less 0%) within this time interval. However, over the last 30-minutes of trading, as Buy Orders enter the market, the average return is 0.05%. Given that the Standard Deviation of all 30-minute buckets is 0.05%, this last half-hour of trading lies on the 80th percentile of all half-our intervals, a statistically significant reading. It remains to be seen if this pattern continues to hold next week and into year-end as institutional investors add to their portfolios heading into the Christmas season, a historically constructive time of the year to be long equities.