The market has been jittery as of late. One key pattern that seems to be developing is the return of late-day swings. Whether you can profit off it using exchange-traded funds (ETFs) is up to debate, but the development is intriguing nonetheless.
According to Tom Lauricella of The Wall Street Journal, “the sudden jump in stock prices in the final hour of trading Thursday builds on a trend in recent weeks where the market has had a tendency to post late-day wild and wooly moves.”
Others have taken notice, too. Experts in the Advanced Execution Services group of Credit Suisse found that:
Throughout most of the year, until June, around 14% of the day’s volume in ETFs was executed in both the first 30 minutes and the last 30 minutes of the day. In fact, slightly more (1.3% on average) was actually executed at the beginning of the day. This compares with around 10% and 18% for the opening and closing 30 min, respectively, for stocks. But in June, Credit Suisse found some 16% of ETF trading volume took place in the final half and hour compared to 13% for the first 30 minutes of the day.
We also saw this divergence between the open and closing volumes during the crisis in Q4 2008, both periods of heightened volatility and uncertainty. Indeed, intraday volatility was steadily declining all the way through April 2010, after peaking in Q4 2008. However, in May-June, it reversed course and increased across the board, back to the levels seen in Q2 2009.
This seems to imply that rising volatility may cause trading patterns to change. In this case, traders may be trying to adjust positions prior to the close in order to reduce the risk they hold overnight, and ETFs are a prime tool for quickly adjusting exposures.
You can read the report in its entirety here – it’s worth a look!
For more stories on ETFs, visit our ETF 101 category.
Sumin Kim contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.