Something has changed - a while ago

[PeterR]

I did this study early last year, but did not update it till today.
A bad oversight.

It compares holding a portfolio in SP500 futures only overnight (close to open) versus holding only during RTH (open to close).

Till summer 2015 the bulk of the advance in SP500 was made overnight.
So holding long a position overnight was the right choice.

But after the 1st leg down in mid 2015 till today any advance is made during regular trading hours.

IMO it still can make sense to hold a long position in profit overnight if one has a good reason for a swing.
But one should expect a countermove overnight - not more favorable advance.

What caused the change ?
I have no idea.
Do the Chinese sell overnight to raise money - is the overnight futures market enough for this ?
Do the Etfs work differently now - IMHO they were the main reason for the mean reversion character of the SP500 rth in the past.
Is this a healthy development - the strength coming from within US ?

I plan to not hold longs overnight, if I do not have a good lead and "only" entered based on some intraday development.

36258

[Pascal]

Hi Peter,


Thank you for this study.
Here is probably the reason:

36259

If Japanese pension funds need to acquire US equities, the only possibility is during opening hours, because the available volume exists only during US market opening hours.

This is probably another sign that Japan's NIRP policy is holding the US markets up for now.
We need to track the BOJ meeting dates and see when they intend to revert their NIRP policy, because this could "crash" US equities.



Pascal

[PeterR]

TY Pascal,

the timing of the NIRP announcement is a strong argument.

So we have this "RTH- buying" now
and the "ETH-buying" of the past years is gone for now.

I agree the Japanese NIRP seems to be strong driver, I will have to monitor it more closely.

[Pascal]

TY Pascal,

the timing of the NIRP announcement is a strong argument.

So we have this "RTH- buying" now
and the "ETH-buying" of the past years is gone for now.

I agree the Japanese NIRP seems to be strong driver, I will have to monitor it more closely.

Indeed, but before starting the monitoring, it would be good to evaluate past occurrences when the RTH -Buying weakened.

You can see that the RTH-Buying comes by waves. Each waves is initiated by a strong push (Blue trend lines,) whihc is followed by some sort of support line (Red trend lines). It would be interesting to tray to evaluate the S&P500 gains 3 days, 5 days, 10 days and 20 days after that red trend line is broken. If you get a negative return, then I believe that monitoring when the latest Red trend line will be broken makes sense.



Pascal

36260

[PeterR]

TY Pascal,

The phases you spotted are interesting.

Here are the dates to your trend line breaks.
(It is a bit subjective)

RTH-Buying vs the normal eth time series of the ES futures:

36276

here are the percent returns for the selected dates:
(I hope I have no error in the steps)

36277

here are the means of the above:

36275

I have not adjusted for a buy&hold base line.
And 2x 2 signals overlap.
But I think a trend line break is not a strong enough signal for a short.

Maybe for T+1, but this is more like a momentum play
(going with a breakout for a day).

[Pascal]

TY Pascal,


But I think a trend line break is not a strong enough signal for a short.



Yes, I agree, but it could be a signal to tell you not to be long anymore.



Pascal

[Pascal]

I am really surprised by the type of buying today.
It is concentrated on the main ETFs, as if the BOJ had decided to drop the Yen and forced Japanese pension funds to indiscriminately buy US assets.

Peter's work tells us to short at around 15:30 today and then buy the open tomorrow.
I believe that thousands of traders will do the same. This means that the down-move will occur earlier.
But for now, everything is pushing higher, forcing shorts out of the water.


Pascal

36309

36308

36307

[PeterR]

Peter's work tells us to short at around 15:30 today and then buy the open tomorrow.


TY Pascal,

but if you have a good reason to be long - stay long and add longs during the potential overnight pullback :).
( ... trading the futures )

(I know I contradict myself a little, but I caught the leg up early during the Europe session.)

One technical argument for this BO (breakout) and volatility increase (but not the direction) is:
Yesterday was a NR7 day + IB. (Narrowest range in 7 days + Inside bar/day)

I have no idea how tomorrow will look like, but my bias is long and I hope we close today near the high of day.

[PeterR]

I discovered an error in my script, that calculates the future returns.

Here are the corrected numbers:

36386
(mean returns for the selected days of a TLB incl. correction for a small baseline drift up)

Conclusions:
1.
Pascal's idea to use a trend-line break as an exit signal and even a short becomes more valid.

2.
Don't trust my coding skills or spelling :) .

[Pascal]

I discovered an error in my script, that calculates the future returns.

Here are the corrected numbers:

36386
(mean returns for the selected days of a TLB incl. correction for a small baseline drift up)

Conclusions:
1.
Pascal's idea to use a trend-line break as an exit signal and even a short becomes more valid.

2.
Don't trust my coding skills or spelling :) .

Thank you for this new data Peter.
This means that we now count on you to post updates regarding this trendline break.


Pascal

[PeterR]

This means that we now count on you to post updates regarding this trendline break.

ok will do :)

[PeterR]

no TLB at end of day 2016-05-31.
-> ride on.

36405

[Pascal]

Thanks for the update

pascal

[PeterR]

The buying during RTH session goes on.
No TLB.

36480

[Pascal]

Thanks Peter.

Keep us posted on this evolution.


Pascal

[PeterR]

no TLB in today's nearly unchanged RTH session.

But I looked into the asia- and EU-session separately:

Overnight in asia is mostly flat since start of the year.
36497

Overnight during Europe session is mostly negative.
36496

Conclusions:

1.
If one plans to go long SP500 futures, look for a potential pullback during the EU-session

2.
This is not clearly visible in the charts,
but multiple times in the last days a measured move target (based on some RTH move) was hit during the asia session - and afterwards we got the EU-pullback.

[PeterR]

Here is an update that shows the session times I picked.
All times are in Chicago times.

I hope the reader does not feel spammed. But this is a work in progress.

My main purpose doing this, is to better understand when to hold-on to overnight runners and if & when not to.
Pascal's idea to use this for a more macro-view via monitoring a trend shift makes also sense to me (see the discussion below)

36515

36517

36516

36514

[PeterR]

No trend shift. RTH buying continues.

36519

[PeterR]

a down day? Not so fast !
The RTH-buying continues.

36529

[PeterR]

The gap down, caused in Asia and Europe , makes today look severe on a normal chart (upper panel).

On the RTH-only chart it is barely visible.

(I made the scale bigger to see the details better.)

36557

[PeterR]

We are at the steeper trend line.
We had two days of RTH- selling.

What are practical conclusions from this ?

I would say, if one is in a short from some intraday pattern, it would be ok to hold short overnight.
Betting that the weakness in Asia or Europe continues.

For longer-term long positions this is not enough to close them IMO.

36605

[PeterR]

RTH was bought again.

36633

[PeterR]

a trend line break

36649

[PeterR]

strong RTH buying again,
after weakness in Asia and Europe

36669

[Pascal]

Yes, indeed... What a strange market!!!



Pascal

[PeterR]

We had some selling rth.
Probably tested the steeper trend line from below.

I don't know how much weight we should give to the daily developments.
IMO key is to spot a change in the general behavior of buying during RTH but selling ON.

This would be a hint that some key players change their behavior for a while.

Pascal identified the NIRP-refugees as a likely dominant group.
I would add pension funds within the US doing something similar to NIRP-refugees: hunting for yield in US equities - or stop doing so for a while.

Aswath Damodaran gives us some equity yield numbers (Implied EquityRiskPremium):

Implied ERP on June 1, 2016=5.03% (Trailing 12 month, with adjusted payout), 6.12% (Trailing 12 month cash yield); 6.16% (Average CF yield last 10 years); 5.54% (Net cash yield); 4.66% (Normalized Earnings & Payout)

36684

[PeterR]

We had selling RTH.

36704

[PeterR]

basically unchanged

36710

[PeterR]

some selling

36717

[PeterR]

some buying rth
before the strong selling during BREXIT.

36721

[PeterR]

even during the BREXIT event,
the pattern of the strongest selling during overnight continuous.
A more or less flat RTH.

36726

[PeterR]

We had selling RTH and mkt rallied only during the asia session.
(without me :( )

36752

[lguthrienyc]

Peter,

Thank You for sharing your analysis and the continued updates.

Lee

[PeterR]

Peter,

Thank You for sharing your analysis and the continued updates.

Lee

Hello Lee ,

I find Pascals work very valuable and unique.
That's my attempt to give a little bit back. :)

Peter

[PeterR]

We had RTH buying, followed by a 2th night of overnight buying.

Overnight buying was the norm till 2015 - lets see how it develops now.

36770

[PeterR]

A 2th buying RTH session.

The Brexit event is nearly invisible now.

36783

[PeterR]

We had a third RTH buying session.

Followed by flat asia.

36803

[Pascal]

We had a third RTH buying session.

Followed by flat asia.

36803

If you control the printing press, you can always perform miracles.

[PeterR]

If you control the printing press, you can always perform miracles.

True.
I also read the argument that the current FED is closer Hillary and in support of the current regime.
So might be an additional factor for the FED to accommodate.

On the other hand I do believe in the base line drift and Triumph of the Optimists:
http://press.princeton.edu/titles/7239.html

And the money flight from Asia and Europe.
EMU banks were very shaky during Brexit and still are.

http://www.boursorama.com/bourse/taux/cds-CDS_5A_DEUTSCHE_BANK-3xDB
(CDS as a stress indicator)

[PeterR]

a 4th RTH buying session.

36818

[PeterR]

a little selling RTH

36851

[PeterR]

some buying RTH

36870

[PeterR]

a little selling RTH, basically consolidation at the high.

I think we see currently an accelerated buying-wave during rth.

36904

[PeterR]

RTH -buying today.

36905

[PeterR]

We had some buying RTH.

Overnight-odds point to some weakness till the next RTH.

36928

[PeterR]

more RTH buying today.

yesterday night the market decided against my overnight odds (seasonality based).

We had strong Asia and Europe sessions.
I interpret this as relative strength.

36946

[PeterR]

we had some selling-RTH.

36979

[PeterR]

another RTH selling session with ON buying.

this was the pattern till 2015.

If we repeat this pattern, it is very bullish to me.

36996

[PeterR]

We are not the only ones tracking this behavior.


stocks have rallied due to large passive funds buying during RTH, investing recent massive inflows

http://www.priceactionlab.com/Blog/2016/07/overnight-manipulation/

[PeterR]

we had a buying rth session.

37027

[PeterR]

another RTH buying session.

and the ON selling trend might turn up.

37038

[PeterR]

another buying rth session.

37059

[PeterR]

a selling rth session.

37085

[PeterR]

a buying rth session.

and some buying ON.

37101

[PeterR]

A rth selling session.
basically flat on the high.

37105

[PeterR]

a RTH buying session.

A tight trading range on the high.
This tilts the odds bullish to me.

37122

[PeterR]

a selling rth session.
flat on the high.

Breakout soon, most likely up.

37129

[PeterR]

tight consolidation continuous.

(Not worthy of a picture :) )

[PeterR]

A RTH buying session.
No breakout yet - on any time-slice.

37184

[PeterR]

I skipped a day.

Today we had a 2th day of RTH selling.
Yet I don't see a change in behavior for now.

37223

[PeterR]

a RTH buying session.

37251

----
something else:

I came across this article by Michael Ashton.
https://mikeashton.wordpress.com/2016/07/28/more-esther-less-mester/

He contrasts value, momentum and carry as drivers for equities.
As a metric he introduces 10y yield - 3month libor spread to show the carry as a factor.

I reproduced it as a ratio (not the right spreads on stockchart)

37250

according to this, carry is not a strong factor currently.
... or carry has less impact on (long) positions

[PeterR]

more RTH buying today.
no change in behavior visible in our little way to display market data.

37268

[Pascal]

Indeed, no change here. So Nirp refugees still well present.
Yesterday, Japanese refugees did not fin investing in US assets interesting, but UK became closer to the Nirp refugee status.

37269

37270

[PeterR]

one rth selling session after 3 rth buying days.

37303

[PeterR]

RTH unchanged by a tick.

(no pic)

[PeterR]

some RTH selling

37345

[PeterR]

some RTH buying.
Still flat in our trading range at the high RTH.

But ON seems to see some buying.
This would change the long down bias of the last 12 months overnight.

37386

[PeterR]

small up RTH

37396

[PeterR]

We had a buying session during RTH.

Before that ON saw also buying.

37408

[PeterR]

a RTH selling session.

37422

[PeterR]

RTH buying

37443

[PeterR]

a 2th RTH buying session.

(no pic)

[PeterR]

another buying RTH session.

I see a breakout up out of our little trading range at the top.

Overnight is weak.

37516

[PeterR]

a little RTH selling session.

37533

[PeterR]

RTH buying session after 2 days of rth selling.

37580

[PeterR]

A RTH selling session.

no change in behavior so far IMO in this view.

I think the market had a chance to break this week based on rate expectations, but the FED talk was less bearish on Friday.

I also wonder about bonds.
Will ZB and ES zigzag lower, but on opposite days once the market expects higher rates again.

Other scenarios are;
Will the ES be weak on higher rate expectations - the text book behavior expected by most participants in US.
Or will the wider rate differential after a hike in US drive money even faster into US assets from the NIRPs.
What sequence will this take, what is the stronger force ?
I bet the differentials are the stronger force.

37594

[PeterR]

and up again.

37623

[PeterR]

a small selling RTH session.

bullish seasonality today and tomorrow.

(no Pic)

[PeterR]

A 2th day of RTH selling.

If you use a big pencil it is a straight line :) )

37661

[PeterR]

a "buying" session by 1 point.

this counts as an up-day on the stats :)

(no change no pic)

[PeterR]

unch RTH session again.

The last two days effectively do not exist.
One would not guess that from the higher volatility / range.

[PeterR]

buying RTH session.

we are still in our TR at the high.

37681

[PeterR]

2th cons RTH buying Session.

37683

[PeterR]

a RTH selling day

(no pic)

... but I am watching the theme that ON becomes the stronger session again.

[PeterR]

We had a selling RTH session, very strong.

I am grateful for the volatility increase, but not the direction.

This is a meaningful event/TLBreak on our chart IMO.

I also notice that ON is relative stronger than RTH, might be a new theme developing.

37688

[PeterR]

RTH buying totally reversed Y/D RTH selling plus some.

IMO this makes this chart neutral again.
Or bullish after a shakeout.
This is kind of frustrating.

Further,
LEV pattern for YM, NQ and ES also reversed up,
TF is lagging.
YM is leading upwards. This is a proxy for Pascal's Mammoth theme.

37691

[PeterR]

RTH selling,
yet not much downside on this chart.

37693

[PeterR]

close to unchanged

37717

[PeterR]

bullish looking chart again.
only a shakeout last week.

37809

[PeterR]

and more upside RTH.

37830

[PeterR]

What correction ?

I am looking for long swing entries again, after my first long attempt was stopped out.

37928

[PeterR]

This chart looks weaker.

But the price action on NQ, TF and also ES is not so weak yet.

I will look for this downside break out to peter out the next days.
The ES alone has a breakout of consolidation - bearish
But the context does not seem right for a severe breakdown, just a technical one.

To me this is most likely a political market now.

A further new potential theme is a reversal of the fear trade (commented on by some)
I will look for weaker bonds, utilities, reits, staples, gold and stronger US equities.

38098

[PeterR]

a bounce - so far.

38135

[PeterR]

161017 EoD

38183

[PeterR]

The RTH sessions are still relatively weak.

38276

IMO people waiting for the US election.
Lots of money on the sidelines for now.

[PeterR]

nothing to see here - move along !

38320

[PeterR]

This chart looks bearish currently.

38401

[Pascal]

Thank you Peter.

I was wondering whether in the past the negative divergence between RTH and Overnight (drop in RTH while overnight pushing up) have been a buying opportunity or not.

Do you have enough past data (Only after March 2009) to do a small backtest?

Thank you



Pascal

[PeterR]

Hi Pascal,

here is a plot that shows the time series together.
(I was unable to get a grid working in the background - so it is a little challenging to read).

I can identify phases of market behavior, that point to some potential flows.
Like you identified BOJ flows at the start of 2016.

And 2014 to mid 2015 overnight outperformed regular hours.

All of these phases seem to be ephemeral and not regularly repeating.

But maybe we can spot something more in the data.

Peter

38426

(the data is Futures data again. potential rollover-gaps are back-adjusted via volume. No big gaps in the e-mini anyway)

[PeterR]

still bearish

38429

[PeterR]

a reversal up

38481

[PeterR]

161115 EoD

38581

[PeterR]

more rth buying

38607

[PeterR]

holding longs overnight becomes more reasonable again.

38653

[PeterR]

holding ON longs still makes sense.

38797