Hickey and Walters (Bespoke) submit: After the Fed cut the Discount Rate in the premarket on Friday morning, stock futures spiked 2-3% and the Dow opened up 300+ points. Throughout the day, however, the Dow pulled back to show just double digit gains at one point before closing up 233 points.
As a case study for the next time an event like this happens, we analyzed the open to close performance of stocks in the Russell 1,000 based on how they opened. We broke the index up by decile based on each stock’s opening gap and then calculated the average open to close percentage change of each decile. So the stocks that gapped up the most make up the first decile and the stocks that gapped up the least or gapped down make up the tenth decile. As shown below, the stocks that gapped up the most fared the worst from open to close, while the stocks that gapped up the least were up the most intraday. From the top decile down, the performance got better and better.
So if you’re looking to put money to work the next time the market opens up big, focus on the ones that gap up the least on the long side and the ones that gap up the most on the short side.