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Early Bird Gets Return: Most Gains Before 10 a.m.

The majority of the S&P 500’s daily gain is coming during the first 30 minutes of trading as overseas events in Europe and China dominate sentiment and reluctant bears here finally buy into a resilient bull market that tends to inch higher each day.

Since the latest leg of this bull market began on Dec. 1, the S&P 500 has averaged a 0.14% gain from the previous day’s close until 10 a.m., according to calculations by Bespoke Investment Group. The market then averages minor gains each hour until 2 p.m., where typically stocks then go through a slight decline.

“The early morning buyers are the guys who waited all day the previous session for the dip that didn't come,” said Josh Brown, a money manager for Fusion Analytics and author of ‘The Reformed Broker’ blog. “They wake up determined to ‘put some money to work.’”

The slow, but consistent gains, of the past month have converted a large number of bears into believers. Bullish sentiment from individual investors has gone from 47 percent at the end of November to as high as 63 percent in December, according to the weekly survey by the American Association of Individual Investors. The latest reading today showed the bulls at 52 percent, down slightly from last week.

Traders have been given good reason to buy into the U.S. market the first chance they get as the overseas news is often dire. Each day there seems to be a story about Portugal or Spain needing a bailout or China raising rates to contain inflation.

Traders work on the floor of the New York Stock Exchange.
AP
Traders work on the floor of the New York Stock Exchange.

“Capital is exiting Europe as a result of the crisis,” said Sean Egan, founder of Egan-Jones Ratings. “The US exhibits an ability to deal with its problems while the EU is in denial.”

In the 30 trading days since the start of December, the S&P 500 has only declined on eight of them, with the biggest drop at just 0.5 percent. Meanwhile the index is up 8 percent since Nov. 30 as economic data pointed to a strong U.S. recovery with light inflation. But, Bespoke says that this daily timing pattern of buying during this run may actually discredit the rally.

“The ‘Smart Money’ indicator suggests that the ‘smart’ money trades at the end of the day, while the ‘dumb’ money trades at the open,” wrote the analysts for the research firm in a note. “Using this theory, the ‘dumb’ money has been doing all of the buying during this rally, while the ‘smart’ money has been on the sidelines.”

Given this pattern, maybe the smartest thing to do is to buy at today’s close.

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:30 ET on CNBC.

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Trader disclosure: On January 13, 2010, following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Najarian Owns (BAC) Call Spread; Najarian Owns (BBY) Calls; Najarian Owns (C); Najarian Owns (F) Call, (F) Bonds; Najarian Owns (GE); Najarian Owns (HPQ) Call Spread; Najarian Owns (JPM) Call Spread; Najarian Owns (MRO) Call Spread; Najarian Owns (MSFT) Call Spread; Najarian Owns (MS); Najarian Owns (YHOO); Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Terranova Owns (GLD) Puts; Terranova Owns (FCX) Puts; Terranova Owns (UPL); Terranova Owns (VRTS); Terranova Owns (PVH); Terranova Owns (GM); Terranova Owns (CVI); Terranova Owns (CNQ); Terranova Owns (LTD); Terranova Owns (C); Terranova Owns (PEP)

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