With weakness in China spilling over to commodities and generating buying interest in 10-year Treasuries and the U.S. dollar, we're seeing meaningful weakness in the U.S. stock index futures in overnight trade. On one hand, this doesn't surprise me; in yesterday's tweets and in the evening briefing, I emphasized that U.S. stocks were acting toppy in the afternoon. What is notable is that today, like Monday, the anticipated weak move started in Asia.
Concretely that means that daytraders--those who are closing their positions out by the end of New York trading--have not participated in a fair degree of recent market movement. This is because market moves increasingly are not beginning in the U.S.; they are reflecting global themes of growth and weakness, with much attention paid to China and other emerging markets.
So, for instance, I see that, since June, the average movement during the overnight session in the S&P 500 Index (SPY) has been .56%; the average open to close movement has been only a little larger at .72%. For 25 of the 56 sessions since the start of June, we've seen more movement from yesterday's close to today's open than from today's open to today's close.
This is not a very recent phenomenon: it has been a feature of 2009 trading that was not present in 2008 or 2007. With decreasing volatility, we are seeing less overall market movement, but we've also seen a shift in the locus of that movement. This has made daytrading the U.S. equity markets an increasingly limited proposition. It has also wrongfooted many portfolio managers who are looking to execute their ideas during U.S. trading hours.
My best assessment is that this is not a temporary phenomenon. Globalization is here to stay and, if anything, we'll see more of it as the world diversifies its reserve currencies. If that is the case, look for some of the best trading opportunities to occur when U.S. traders are literally asleep at their wheels.