Last Hour Sell-Offs Becoming The Norm

Includes: DIA, IWM, QQQ, SPY
by: Bespoke Investment Group

The VIX Volatility index is known as the "fear index," but another good gauge of fear in the equity market is how stocks perform in the last hour of trading. A positive last hour of the trading day for the market is a sign that traders are comfortable holding stocks overnight and into the next day, while a negative last hour means they aren't. Last-hour performance is also a good gauge of how traders feel about foreign markets and geo-politics in general, since Asian and European markets open for trading while we're all sleeping here in the U.S.

The world has been on edge lately over the conflict in Syria, and markets here have been responding accordingly by selling off into the close on a regular basis. Over the last month (22 trading days), the market has declined in the last hour of trading 18 times (82%) for an average change of -0.14%. More recently, the index has now declined in the last hour 8 of the last 9 trading days, and even this week when the market rose, it sold off in the final hour 3 out of 4 times! Traders are just doing whatever they can to get stocks off their hands by the time the 4 o'clock close rolls around.

Below is a look at just how bad the last hour has been recently. The chart shows the average performance of the S&P 500 during the last hour of trading on a rolling one-month basis over the last six months. Back in March when the market was charging nicely higher with not a care in the world, investors were bidding up stocks in the final hour of trading. Since July, however, we've seen a steady downtrend in last-hour performance, and Friday it hit its worst level of the year. When will traders be comfortable holding stocks overnight again? Definitely not until the Syria situation gets more clarity.