Stock Trading—First Half Hour vs Last Half Hour

Credit: @BarChart; read more patterns here

In technical analysis, the open and close price of a market/stock price are important.  For example, Candlestick Analysis is mostly focused on the relationship between the open and the close. The open reflects the reaction to news overnight or pre-market.  The close reflects the reaction after the open. In general, a move higher after a weak open is positive and a move lower after a strong open is negative.  As a rule of thumb, you can use Candlestick to:

• Look for bullish hollow red at the market bottom
• Look for bearish solid black at the market top

In this article, we will discuss the significance of first half hour in the opening and last half hour in the closing of stock trading.

Accumulation and Distribution

Here we will use Accumulation/Distribution as general terms (vs. a momentum indicator), which means whether investors are generally "accumulating," or buying, or "distributing," or selling, a certain stock.

Some analysts use $NYUPV:$NYDNV to identify a major accumulation day (MAD). These are days when up volume on the NYSE is at least 9 times larger than down volume.  Similarly, you can use $NYDNV:$NYUPV to determine a major distribution day too.

Dumb Money vs Smart Money

As Randy Frederick has pointed out:

where dumb money means average individual investors and smart money means big institutional investors and mutual fund companies.

First Half Hour vs Last Half Hour

Mark W. Yusko has also pointed out the significance of trading the first half hour (i.e., dumb money) vs trading last half hour (i.e., smart money):

Furthermore,  Liz Ann Sonders has commented that different returns could result from your investments on SPY if you:

• Bought on open and sold on close each day
• Bought on close and sold on open next day

However, this could not be a winning investment strategy for individual investors because the trading fee you pay will be a large lump sum too.

Wrap-up

In [1], Jesse Felder has explained how Smart Money Index works and what has changed after corporate's buybacks and passive investments via ETFs:

• The Smart Money Index simply represents the difference between the first 30 minutes of trading and the last hour. 
• Due to the corporate buybacks
• Considering buybacks are prohibited during the final half hour of trading, corporate demand for equities only occurs early in the day.
• Due to the popularity of ETFs
• The vast majority of trade volume now occurs during the last half hour of trading as passive and other systematic vehicles perform their daily balancing acts needed to match their benchmarks.

References

1. What’s Behind The Rapid Plunge In The ‘Smart Money Index’?