A six-year analysis of (1508) trading days highlights a dramatic difference in the cues (i.e., the NASDAQ-100 Index Tracking Stock: NASDAQ SYMBOL = QQQQ). A 100-share long position taken at the beginning of each session resulted in an average gain in the overnight trading session (OVS) of 4.66 cents; whereas, the average loss in the regular trading session (RTS) was 6.75 cents for each trading day.       

Overnight trading session  =  (today’s opening price – yesterday’s closing price)
Regular trading session     =  (today’s closing price  – today’s opening price)

This article investigates the price movements of the cues from January 1, 2000 to December 31, 2005.  With a daily average of 85 million shares, my findings are, generally, an accurate barometer of trading technology stocks with active volume. The widely popular exchange-traded fund (ETF) used for my study replicates the movements of the NASDAQ 100 index, and, because the cues have a somewhat perfect correlation with the NASDAQ 100 futures, you can actively trade it as its replacement, day or night.

When I broke six years of performance into 24 trading quarters, the OVS came away with positive results in 15 quarters. Its best results (5↑ - 1↓) came in the second quarter; whereas, the worst results came in the third quarter (2↓ - 4↑).

The regular trading session was capable of producing 10 positive quarters. The first quarter was particularly poor -- recording 5 losses in 6 attempts; however, each successive quarter showed steady improvement. 
           

When you compare the quarterly results of the two sessions, you see that the RTS was consistently unprofitable; whereas, the OVS was able to generate three impressive profitable quarters.

When you contrast the sessions within each trading quarter, you find that the OVS was superior in 17 of the quarters, but much of its success was in the first half of the trading year, providing an amazing 11-to-1 mismatch.  

Running the Performance of the Two Sessions

Looking at the running summary of these two trading sessions, we can see how the overnight session began its relentless run to the upside in April 2003. During those 696 trading days, the overnight session increase was $19.57; whereas, the decrease in the regular session was $4.40.

The RTS has been making higher highs with higher lows, which generally presages a promising future.  But, despite the recent rise in the RTS, an examination of the graph shows a widening disparity between the two sessions.

Although differentiating  yesterday’s close from today’s close is not a common practice, we can often discover emerging patterns of success by splitting the performance of the overnight session (yesterday’s close to today’s opening price) from the regular trading session (the opening price from the close of trading). A six-year analysis of the cues demonstrates meaningful differences in the quarterly performance between the two sessions.

It is always difficult to speculate on how long a divergence will persist, but, in trying to forecast the longevity of a trading pattern, it is important to continually monitor our results. Unless there is a departure from its current performance, it is simply best to “go with the flow.”

Although this phenomenon will not sustain itself forever, I do anticipate profitable trading opportunities -- perhaps with differing results to surfacing. By simply tracking the performance of these two disparate sessions, you will be enhancing your knowledge, and consequently, your chances for success.   

Using eSignal to Extract Emerging Patterns of Success or Failure

Although I began writing about this performance divergence in my two articles on overnight trading in 2004, my analysis would have been even more enlightening if I had used the 120 intraday exporting feature within eSignal. Now, that I’m using this essential feature, I am able to capture costly information, which I had been throwing away.

In future articles that will be posted on eSignal’s websites, I will begin to show you how this downloading feature within eSignal can provide you with a more meaningful account of the complete trading day.

*Reprinted (and modified) with permission from Anthony Trongone, Ph.D., CFP, CTA, Director of Executive MBA Programs in China at Centenary College in Hackettstown, New Jersey