BEHIND THE MONEY: Late 'Smart' Money Bidding Up Shares in the Final Hour

One trend of this earnings season is late buyers swooping in to bid up shares in the final hour. The so-called smart money buys late, after the 'dumb' money has shown their hand, according to Wall Street lore. If true this time around, this buying bodes well for the health of this comeback.

Fundamentally it makes sense. The headline earnings numbers are pretty scary, triggering some selling at the open, but then the late buyers focus in on the year-end forecasts and the fact that they could be much worse. See Caterpillar this week as a recent example of this trend. Morgan Stanley attempted to recover from an earnings gap lower yesterday, but failed in the final minutes.

It's not just the Fast Money gang that has noticed this trend.

"Interestingly, stocks are averaging a gap down of 1.12 percent at the open following earnings, and then averaging a gain of 3.76 percent from the open to the close," wrote Bespoke Investment Group in a note to clients last night. "So the trend has been for stocks to gap down on earnings and then head higher during regular trading hours."

We'll investigate this phenomenon further on the show tonight. Also check out Bespoke's free blog. Always a wealth of information there.

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