Does The US Session Usually See Trend Reversals?
It usually comes down to sentiment but there can be other factors to consider from session to session.
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We have a question from Kerrick asking about the US session, Kerrick asks whether we should expect pullbacks during the US session instead of thinking the market will continue with the overall intraday bias?
This is an important one to consider, especially if you are trading during the US session, which I assume you are.
Now, there is a couple of things we can say about the difference between the trading sessions, and the first area we should always consider is the overall sentiment. If the sentiment that is driving the markets on a intraday basis is strong enough, there shouldn’t be any reason for the market to have an abrupt reversal and pullback during the US session, but that won’t necessarily stop the market from taking breather and pulling back from one session to the next even though the same sentiment might still be present.
Something that can sometimes make a difference is the type of news that hits the market. If the news has a strong influence on European equities, but isn’t something that affect US equities as much, then you might have an increased probability of seeing the market change course during the US session, but it will be vey tricky to put it down to an exact reason if there is no fundamental news flow or specific catalysts that changes the bias.
The other thing to remember, is that pullbacks is something that will happen, whether it’s during the Asia-Pac session, or the European session or the NA session, pullbacks is something that will always happen, and even though we can look for high probability places on the charts where we can expect a pullback, there is obviously no guarantee that it will happen, regardless of the trading session.
Now, in the current context that we are trading in here in July 2020, there is a very interesting article that was posted by Morgan Stanley which I think is a very interesting read and might explain some of the frequent US session pullbacks that you referred to in the question.
Here is an extract from the note by Morgan Stanley:
“One of the characteristics of the US equity rally over the past four months has been the divergence between the performance during regular market trading hours i.e. 09:30 to 16:00 EST vs. the performance during extended hours i.e. after-hours and pre-market trading. This divergence is shown in Figure 1. While up until the end of March, there was little divergence, since April all of the S&P500 up move appears to have happened during extended market hours, while regular trading hours have on average acted as a small drag.”
If we have a look at this chart we can see the difference between the day session and overnight session for the S&P, according to the zerohedge article they pointed out, that from May, the S$P has lost 5 day session has lost 5 points, while the overnight session has gained 319 points.
They highlighted in their article that the divergence between cash market and extended hour markets meant that a trader that bought the cash close, and sold the cash open would have generated a roughly 40% annualized return, which is staggering.
Now, there are many speculative reasons given for why that occurred, with some pointing to the possibility of central banks choosing to buy when markets are sleeping, but according to Morgan Stanley there is another, less conspiracy-based theory for this phenomenon, which explains that most of the biggest market-moving drivers recently has occurred after US cash hours or before US cash hours, however you want to put it, and this will include important market news like vaccine news, things like important European and Chinese PMI’s, and also keep in mind that very important US data such as NFP, retails sales and jobless claims are all released before the US Cash open.
So, whether it’s the conspiracy reason or whether it’s the news reason, the point is that there has been a divergence recently to take note of. Whether this divergence is something you should consider trading is entirely up to every trader’s own discretion.
Being in front of the screen every day during the EU session I tend to agree that the news flow has been very heavy during the EU session compared to the NY session, which would explain the big moves during the EU session and then followed by some pullbacks during the NY session.
The thing about reading too much into studies like this, is that this trend can change tomorrow for any number of reasons, which is why I would be careful of reading too much into it.
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There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
-----
We have a question from Kerrick asking about the US session, Kerrick asks whether we should expect pullbacks during the US session instead of thinking the market will continue with the overall intraday bias?
This is an important one to consider, especially if you are trading during the US session, which I assume you are.
Now, there is a couple of things we can say about the difference between the trading sessions, and the first area we should always consider is the overall sentiment. If the sentiment that is driving the markets on a intraday basis is strong enough, there shouldn’t be any reason for the market to have an abrupt reversal and pullback during the US session, but that won’t necessarily stop the market from taking breather and pulling back from one session to the next even though the same sentiment might still be present.
Something that can sometimes make a difference is the type of news that hits the market. If the news has a strong influence on European equities, but isn’t something that affect US equities as much, then you might have an increased probability of seeing the market change course during the US session, but it will be vey tricky to put it down to an exact reason if there is no fundamental news flow or specific catalysts that changes the bias.
The other thing to remember, is that pullbacks is something that will happen, whether it’s during the Asia-Pac session, or the European session or the NA session, pullbacks is something that will always happen, and even though we can look for high probability places on the charts where we can expect a pullback, there is obviously no guarantee that it will happen, regardless of the trading session.
Now, in the current context that we are trading in here in July 2020, there is a very interesting article that was posted by Morgan Stanley which I think is a very interesting read and might explain some of the frequent US session pullbacks that you referred to in the question.
Here is an extract from the note by Morgan Stanley:
“One of the characteristics of the US equity rally over the past four months has been the divergence between the performance during regular market trading hours i.e. 09:30 to 16:00 EST vs. the performance during extended hours i.e. after-hours and pre-market trading. This divergence is shown in Figure 1. While up until the end of March, there was little divergence, since April all of the S&P500 up move appears to have happened during extended market hours, while regular trading hours have on average acted as a small drag.”
If we have a look at this chart we can see the difference between the day session and overnight session for the S&P, according to the zerohedge article they pointed out, that from May, the S$P has lost 5 day session has lost 5 points, while the overnight session has gained 319 points.
They highlighted in their article that the divergence between cash market and extended hour markets meant that a trader that bought the cash close, and sold the cash open would have generated a roughly 40% annualized return, which is staggering.
Now, there are many speculative reasons given for why that occurred, with some pointing to the possibility of central banks choosing to buy when markets are sleeping, but according to Morgan Stanley there is another, less conspiracy-based theory for this phenomenon, which explains that most of the biggest market-moving drivers recently has occurred after US cash hours or before US cash hours, however you want to put it, and this will include important market news like vaccine news, things like important European and Chinese PMI’s, and also keep in mind that very important US data such as NFP, retails sales and jobless claims are all released before the US Cash open.
So, whether it’s the conspiracy reason or whether it’s the news reason, the point is that there has been a divergence recently to take note of. Whether this divergence is something you should consider trading is entirely up to every trader’s own discretion.
Being in front of the screen every day during the EU session I tend to agree that the news flow has been very heavy during the EU session compared to the NY session, which would explain the big moves during the EU session and then followed by some pullbacks during the NY session.
The thing about reading too much into studies like this, is that this trend can change tomorrow for any number of reasons, which is why I would be careful of reading too much into it.
-----
If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
