Wednesday, September 16, 2009

Changes From the Market Open: What We Can Learn

Is an overnight rally continuing or reversing? One effective way I've found for monitoring that is simply tracking where my basket of stocks is trading relative to their opening prices.

If a rally is continuing, we should see dominant green: stocks moving up from their open and finding institutional buying interest (as large traders are particularly active in early hours).

If the rally is not continuing, we should see dominant red: those large traders taking profits and selling into the overnight rally.

If you click on the table above, you'll see my basket of stocks and how they were recently trading this morning within the first half hour of trade. It's a nice way to see the effect of intermarket pullbacks in commodities and bounce in the dollar. I use this information to help me frame "reversion" trades back to the middle/low end of the overnight range and back to the prior day's pivot price level.