What if there was an easier way to retire, sitting in the bathtub on the beach watching suns setting night after night with your significant other?
What if you could just tune out all that constant hubbub and noise spewed endlessly on business media, promoting this fintech stock, that cannabis company, the other vaccine manufacturer as the ‘next Amazon of you-name-it industry’?
Roll Up, Roll Up, Roll Up, ladies and gentlemen (and non-gender-binary individuals), there is… in four simple steps:
1) Put on pants
2) Sell the cash market open on the US market
3) Buy the cash market close on the US market
Yes, it’s magic, as we have detailed numerous times previously (here, here, here, and here) but now, none other than Goldman Sachs has finally recognized this anomaly:
Over last eight months, the SPX has rallied 36%, but on an unusual schedule: essentially all of the upside has happened outside of US trading hours (+38%), and on Mondays and Wednesdays (+31%).
Most of the overnight moves have happened in either the post-close/Sunday evening period (+11% before 9 PM, which includes many earnings announcements), and in the period when Europe is open and the US market has not opened yet (+17%).
The reasons for this are complex.
Fundamental reasons for this trend include the timing of market-moving news. Earnings announcements and vaccine news have generally been released outside of trading hours (but not in the deep overnight period), but developments around managing the virus have evolved during the day.
One possible technical explanation of the weak SPX performance during the trading day is the strong activity in single stock call options: to the extent these are bought and then later sold at a higher delta by end investors, they can be a net negative for markets during market hours when single stock options are trading (but perhaps their counterparties’ gamma, managed via SPX futures, has propelled rallies to accelerate overnight).
Since the beginning of November, close-to-close realized volatility on the SPX has been lower when measured on a close-to-close basis than when using prices collected at other times-of-day. This intraday mean reversion is consistent with net long gamma positioning in December options.
In fact, off the March lows, as the stock market has soared ever higher to new records on the back of nothing but central bank hot air, the S&P 500 has risen just 30 points during the day session and a stunning 954 points from the close to the open…
We can narrow things down even further if you’re really not prepared for all that waiting. A recent research report “Market Return Around The Clock” shows that the majority of all those gains occurs between 2330ET and 0330ET…
Please note this is not investment advice, this is sarcasm. Trade Accordingly.