TRADING TECHNIQUES
Emerging Patterns Of Profitability
Rising And Falling Overnight Sessions
by Anthony Trongone, Ph.D.
Don't overlook how the performance of an individual stock
affects the direction of an index-tracking stock or commodity. Here's an example using the NASDAQ 100.
If history
is any guide, knowing how and when individual companies perform within
an index-tracking stock or commodity will help you identify profitable
trading opportunities. Keeping track of the results could allow you to
see a positive impact on your returns as the trading day comes to a close.
To find out how this works, I focused on the 14 companies with the highest
market capitalization in the NASDAQ 100 covering 770 trading days from
January 2, 2002, to January 21, 2005. These companies (Figure 1) represent
a cumulative weighting of 47.44% of the overall index. This extensive analysis
will provide you with reliable trading strategies as well as the knowledge
necessary to give you a statistical advantage when taking a position at
either the open or close.
The astute trader observes the effect of a difference in the rising
or falling overnight trading session. Consider, for instance, what the
cumulative results are when taking a long position at the start of the
regular session after it experiences a rising or falling overnight session.
After rising in the overnight session, there was a loss of -$190.74, but
the company came away with $302.84 worth of earnings in the regular trading
session.
Since 11 stocks as well as the index-tracking stock were unable to produce
similar performance results within each trading session (that is, stocks
with a pattern of success overnight were unprofitable in the day session,
but stocks with a pattern of failure in the overnight session are profitable
during the day), several reliable trading strategies are possible. You
can easily profit from these opportunities by simply trading one stock
against another, one stock against an index-tracking stock or commodity,
or by simply trading the index-tracking stock or the futures contract.
FIGURE 1: WEIGHTING OF THE NASDAQ 100. The largest 14 stocks
contribute a weighting of 47.44%.
...Continued in the July issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the July 2005 issue
of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2005, Technical Analysis, Inc.
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