Time
of Day: First Hour
Closing markets seek equilibrium in stock supply and
demand. But overnight activities upset this delicate balance, forcing volatile shifts in
morning prices. Specialists calculate this initial imbalance through their order book,
sometimes triggering a gap open. NASDAQ market makers communicate before the open by
displaying outside pricing until the most aggressive members win the inside positions. In
both venues, changing spreads seek the moving targets of opening demand and momentum.
The opening surge may or may not ignite a subsequent
trend. The first hour searches for a daily trend by forcing prices through a testing
gauntlet. This process provides the road map for the "floor" to set subsequent
pricing for their securities.
The 3rd Bar Reversal often presents the
first challenge. This test refers to the 3rd bar or candle of the 5-min S&P Futures
contract, measured from the opening of the equity markets. This time zone also corresponds
with 9:40am to 9:45am, the end of the 15-min delay built into retail access to market
quotes. Painting price for this retail crowd ensures some additional volume for the market
makers. But since this group can be the last "paper" in the door, other market
forces may take over and (possibly) trigger a reversal.
A second zone for opening trend reversal begins shortly
after 10am. The strong expectation of this 35-min test becomes a self-fulfilling event. It
also has tremendous value for short-term traders. Many day traders don’t want to
enter positions until early testing shows the trend they want to trade will remain intact.
The 35-min test allows them to get into the market while volatility remains high.
Trends that survive this 35-min reversal test often
continue throughout the day. This tendency elicits another unique event of the first hour.
The last 15 minutes of this important period trigger capitulation by the losing side.
Price movement tends to the same direction as the winning trend for the day and can be
quite strong as day traders enter their first commitments.
The first hour's activity sets a theme that will likely
repeat itself frequently during the trading day. Market participants reveal their
strengths and weaknesses in this testing gauntlet. Volume then drops sharply, often
constricting price movement and setting range resistance difficult to penetrate until one
side gathers new momentum.
Order within the Chaos - Daily buying and selling
behavior create pulses of market activity characterized by order and dimension. NYSE TICK
routinely develops parallel channels that identify natural entry and exit zones. When
these channels are broken, activity surges in the direction of the break. Also note how
TICK channel behavior organizes time into distinct units with high and low extremes
appearing at predictable points.
