The Nasdaq Amateur Hour

  • June 22, 2000
  • TradingMarkets Editors

One pattern that the pros focus on is Nasdaq’s
tendency to make a sharp reversal in the direction that is counter to the open’s
within the first hour of trading.

Put simply. . .

  • if you get a strong up move at the open, the market will tend to make a
    sharp reversal down within the first hour of trading

  • if you get a strong down move at the open, the market will tend to make a
    sharp reversal up within the first hour of trading

Before I go on with this discussion, remember that this is a tendency, not a
“sure thing.”

Now let’s review a five-minute chart of the recent action in the Nasdaq to
get a feel for this phenomenon.

This chart shows:

  • The Nasdaq opened down on the 15th, 16th, and 19th and then sharply
    reversed direction and trended higher for the rest of the day.

  • On the 20th, the Nasdaq opened higher and then turned lower for rest of
    the day.

  • On the 21st, we had a reversal from the positive open, but the market
    still managed to close higher by the session’s end.

  • On the 22nd (today), the Nasdaq reversed higher after a negative open, but
    as of this moment is going lower.

According to Kevin Haggerty, the first hour of trading is emotional. You have
the uninformed public putting in their market orders and the market makers and
specialists taking in inventory. Ultimately, the latter have to work off their
inventory by taking the market back in the opposite direction from the open.

What does this mean to you? The most common approach that savvy traders take
is to ignore the first hour of trading look for real trend to develop after the
first hour or two of trading. More gutsy traders try to fade the open.

A fuller explanation of Opening Reversals and how
they can be exploited in individual stocks will be available soon from
TradingMarkets.com through a videotape of Kevin’s two-day Trading With The
Generals seminar. Watch our site for more information. 

Until tomorrow,

Eddie

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