Stocks Trim Losses Yet Again: Is the Morning ‘Amateur Hour’?

Like clockwork, the U.S. stock market rallied back on Wednesday from its morning low – just as it did on Monday and Tuesday -- as overnight panic about Europe’s political woes gave way to value buying focused on an improving U.S. earningspicture.

NYSE trader
Photo: Oliver P. Quilla for
NYSE trader

Traders said the three-straight turnarounds for the market were a bullish sign as big institutions tend to dominate trading activity later in the day while the morning is more of a mixture of retail investors and European money managers.

“Amateur hour is 9:30 to 10:30,” said Michael Murphy, a hedge fund manager with Rosecliff Capital. “Smart money trades later in the day. Risk is definitely to the upside here.”

There’s an old Wall Street maxim that the so-called dumb money trades early and the smart money comes in later. Trading by that phrase has made one quite a bit of money this week.

“The fact that high yield bond spreads have barely budged even as equities declined says that the dip buyers may be on the right side of things,” said Paul Hickey, founder of Bespoke Investment Group, a research firm which studies market patterns.

The week started with a flurry of pessimism after French and Greek electionsshowed a clear move to the left for the region. Traders worried that the actions – especially the failure to form a coalition government in Greece – would threaten the execution of a rescue plan put in place last year for troubled countries like Greece, Spain and Portugal.

The S&P 500 rebound tends to occur between 10 and 11 am ET in the U.S. -- or about an hour before the European markets close. Today, stocks bottomed at 10:29 am on the nose. Shares of companies with heavy international exposure, such as Apple and Caterpillar , led the turnaround.

Old Wall Street sayings aside, it begs the question, “Who’s right, the early money or the late money?” And should one just sit back and put a buy order in tomorrow at 10:30?

“Forced liquidation selling in EU abates at 11:30,” said Dave Lutz of Stifel Nicolaus. “We saw the same gig in 2008. Funny thing is…the Street is starting to buy now ahead of the European close which tells me that this trade is getting long in the tooth.”

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