Over the past decade, the S&P 500 has experienced markedly stronger performance from the close at 4:00 PM EST to the open at 9:30 AM EST. During the past 10 years purchasing SPY on the close, and selling on the open would have netted over 17.7%, while buying the open and selling the close would have lost over 10.8%. The performance gap is even more striking on QQQQ, with an 83.04% gain holding from close to open, and a 78.56% loss holding from open to close.
Emerging market strength is one factor that can explain this pattern. While the S&P 500, and many of its first world counterparts, continue to trade well below their highs from a decade ago, EEM has advanced over 317% in the past 10 years. Given that a significant proportion of emerging markets trade when U.S. equity markets are closed, this would appear to explain part, but not all, of the performance discrepancy.
From 10/01/07 to 04/01/09 most global markets experienced significant declines. SPY lost 47.46%, QQQQ lost 40.83%, and EEM lost 50.11%. During this period, buying SPY on the close, and selling on the open, would have produced a return of -18.95%, while buying the open and selling the close would have generated a -34.36% return. Similarly, buying QQQQ on the close and selling on the open would have produced a return of -7.76%, while purchasing on the open and selling on the close would have generated a -34.17% return.
The numbers listed above assume an equal dollar investment each day, and do not account for slippage, commissions, or compounding.
While technical patterns are widely known to change over time, and should be viewed in conjunction with many factors, the strength and consistency of this pattern warrants consideration. More to come...