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Bulk of gains in US Stock Market Year-to-Date Have Come from Overnight Changes

Bulk of returns in US stock market year-to-date have come from overnight action while during regular trading hours there has been selling by algos and speculators.

Below is a table with the numbers of stocks in three major indexes with positive overnight accumulation and at the same time negative regular trading hours accumulation year-to-date.

Index Number of stock
S&P 500  161
NASDAQ-100  45
Russell 3000  1383

It appears that the bulk of the gains in US stock market year-to-date have come from overnight changes while regular hours activity has been dominated by algo and speculator selling. This is also reflected in the fact that the S&P 500 in 10 days before yesterday moved in a tight range of less than 1% from the all-time closing high.

QQQ ETF

The ETF is up 8.6% year-to-date.

Nearly all gains in QQQ ETF year-to-date have been realized overnight with $31.4 versus just $2.2 in regular trading session.

IWM

The ETF is up 17.4% year-to-date.

For IWM, overnight accumulation gain is $45.8 versus a loss of $9.4 during regular trading hours! All gains came from overnight.

Below are some stock examples that illustrate this anomaly year-to-date with overnight accumulation positive and regular trading hours accumulation negative.

AMZN

The stock is up 2.8% year-to-date.

For AMZN overnight accumulation gain is $546.6 versus a loss of $383.6 during regular trading hours! What we have here are relentless gains for the stock overnight followed by relentless selling during regular trading hours.

GME

This meme stock is up +1,070% year-to-date!

For GME, overnight accumulation gain is $463 versus a loss of $260 during regular trading hours! This is weird and raises suspicion of some kind of manipulation, which is hard or impossible to prove.

AMAT

This stock is up nearly 60% year-to-date.

For AMAT, overnight accumulation gain is $58.4 versus a loss of $7.8 during regular trading hours. All gains year-to-date come from overnight.

PYPL

This stock is up 15% year-to-date.

For PYPL, overnight accumulation gain is $69.4 versus a loss of $-31.8 during regular trading hours. All gains year-to-date come from overnight.

There are numerous other examples but you get the idea. The above may be hard to digest but it is what it is. I have some hypotheses of why this is happening. The simplest explanation is that the US market is algo-dominated and these algos are short-term predators with very large purchasing power. They sell during the day to shake out weak hands and profit. But this is just a hypothesis with no possible proof.

If these algos would disappear magically (or via regulation), then probably the market would explode higher. The actions of those regular trading hours algos create a small but significant volatility drag on daily returns. The algos cannot affect medium-term direction but they seem to be able to slow the uptrend as we saw with the consolidation of the last 11 days. Also note that I’m not alluding to illegal activity and the action may be perfectly legal within existing framework and rules.


Disclaimer:  No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting and backtesting program: Amibroker. Data provider: Norgate Data

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