It’s chic to check overnight markets, futures, currency, and so on in order to get a bead on how markets will open. Yea, I’ve done it myself. Still do, sometimes. But that’s typically to sniff out something really major. It’s seductive, because you can predict how the market will open with pretty solid accuracy by looking at the futures. But the first hour of trading is regarded by most traders as "amateur hour."
Someone said on CNBC this morning that a pro doesn’t watch the open, he watches the close. Yep, I can attest that I get a far better read on things by looking at the close.
Today was an example of something to pay attention to if you’re looking for signs of a short-term reversal such as the end of this recent correction. First, you’ve got a huge up day. Second, it began up, drove up hard, took a breather for lunch in NY, and recommenced for the remainder of the day, actually accelerating into the close. Very opposite of Friday where the market posted good gains but couldn’t hold them. Traders didn’t want to stay long over the weekend (opening gaps down can be brutal in declining markets).
Here’s today in the S&P 500, up 41.87 for 2.91%. That line segment you see is part of a trend line going back to the beginning of this Bull in 2003, drawn on a weekly close basis. Always amazes me how these various drawings affect traders and become self-fulfilling prophesies so often.
Here’s another example. This is a measure of market breadth
throughout the day as a comparison. This is in terms of the volume of
shares traded for advancing issues, vs. the volume of shares traded for
declining issues. What this means is that all the action (i.e., volume)
was serving to drive prices up rather than down. Look how it really
accelerates into the close.