Even though the S&P 500 Financial sector is down more than 50% since the start of last September, the sector has actually averaged gains during two hours of the day since then. As shown below, the 2 PM to 3 PM (ET) and 3 PM to 4 PM hours have averaged gains of 0.19% and 0.14% respectively since last September. The worst hour of the day for the Financial sector has been the prior close to 10 AM, which has averaged a decline of 0.42%.
A common market axiom is that individual investors ("dumb money") trade at the beginning of the day, while institutional investors ("smart money") trade at the end of the day. If this is true over the last six months, the "smart money" has actually been buying up Financial shares while the "dumb money" has been selling. With the sector down 50%+, the "dumb money" has been winning out, but it might say something about its future direction if this trend continues.
Does this mean that the price usually is higher in the morning? So to sell in the morning and buyback in the afternoon may not be a bad idea.
Posted by: Jeff | March 25, 2009 at 04:54 PM
I have a strong suspicion that this is due to leveraged inverse ETFs. Inverse ETFs in financials have been wildly popular the past six months. Since these inverse ETFs promise the inverse of daily returns, they necessarily have to sell in the morning and cover in the evening. I am sure algorithms are already exploiting this..
Posted by: alphaCobra | March 25, 2009 at 05:50 PM