This historic market trend just ‘flipped’ in the coronavirus chaos

Finance

The coronavirus chaos has turned a historical market trend on its head.

According to Bespoke Investment Group co-founder Paul Hickey, buying and holding stocks in extended hours trading has morphed into a losing proposition for investors.

Typically, it has been a time frame that’s more profitable than buying at the open and selling at the close.

“This year has been a lot different. Holding equities outside of regular trading hours has actually resulted in a decline of 28% while holding during the trading session has resulted in a gain of about 6%,” he told CNBC’s “Trading Nation” on Monday.

He highlights the under the radar pattern in a 2020 chart of the SPDR S&P 500 ETF Trust, which tracks the overall index.

“It’s been completely flipped,” said Hickey. “You’ve been rewarded by holding from the open to the close. But holding overnight, you’ve just been smoked.”

It has happened five other times since 1993, according to Hickey. He last saw a similar pattern in February 2009, in the throes of the financial crisis.

However, it’s not a sign of long-term fundamental problems. Rather, Hickey sees it as positive leading indicator.

Six months after the trend flipped, he finds the S&P 500 was up 100% of the time for an average gain of 6%.

“One year later, you were higher four out of five times for a median gain of over 21%,” Hickey said. “This kind of extreme reversal of a trend that has been relatively consistent throughout history has usually resulted in above average gains going forward if you have a time horizon of more than a couple of months.” 

On Monday, the S&P 500 rallied more than 7% and saw its third biggest point gain ever. It closed at 2,663, which is 22% above its recent low.

Disclaimer

Articles You May Like

Wells Fargo gets a bold upgrade ahead of earnings. Why the stock can play catch-up
Lula or Bolsonaro: Wall Street braces for two wildly different results in Brazil election
PepsiCo cuts earnings forecast as North American turnaround takes longer than expected
United Airlines gets aggressive in battle for top Delta, American flyers
How To Find The Best Retirement Place To Follow Your Passions

Leave a Reply

Your email address will not be published. Required fields are marked *