The Dow Says No Once Again to Off-Hours Selling Pressure

Dow

On Friday, the Dow worked hard all day to overcome the hole they were put in and got it back. Faced with another hole Monday, the Dow got it back again, and just kept going.

Last week’s poor market index performance had stock market observers a little on edge, and even Friday’s surge during normal market hours still was recorded as a losing day due to the large gap down that the market opened up at.

U.S. markets don’t just close when the bell rings, and they actually trade virtually 24 hours a day from the time the Asian markets open on Monday morning to the time that the New York market closes on Friday afternoon, and the after-hours trading that goes on while the New York market is closed does affect things quite a bit.

The futures market is a huge one all by itself and U.S. indexes are the king of the futures market. Americans trade these markets after hours, as do traders and investors from all over the world. This involves not just the indexes but affects individual U.S. stocks as well, and this is why we can see things like the market respond to earnings reports of stocks and other events that happen after hours.

The end of the pullback of last week did end when the New York market opened. Even though Friday looked like a day where no progress was made, and even suggested we gave up a tiny bit of ground, Friday was a strongly bullish day nonetheless.

The off-hours trading during the overnight hours on Sunday night and Monday morning, U.S. time, did try again to crash the party, and the Dow opened up with a similar big gap that it did on Friday morning. This time though, the response by the New York market was even stronger, not only making back the big gap but doubling the response of Friday.

Monday’s Market Performance Was Quite Impressive

During the regular session, the Dow gained over 450 points, twice the gain we saw on Friday, and this left us with a nice day for those on the long side. This was in spite of the damage that Boeing, a Dow component, did to the index, on concerns stemming from a crash of one of their planes over the weekend, although Boeing really didn’t affect the regular session and actually contributed to the 450 points.

The Dow ended up 0.79% on the day overall, and the broader S&P 500, free of the weight of Boeing, performed almost twice as well, posting a gain of 1.47%. When we look at the movement during the session though, both indexes performed similarly percentage wise, only the S&P didn’t start out in such a big hole.

The Nasdaq also did their part, and outperformed both in fact, booking a 2.02% gain Monday. This isn’t unusual given the higher beta of the Nasdaq overall, meaning that it tends to be more volatile than the other two major indexes and tends to go both up more and down more, as long as what is driving the market is broad enough, indicating overall sentiment.

When we look at Boeing’s performance on Monday, we can see that all of the punishment was delivered under the cover of darkness, as it gapped down from $422.54 at the close of Friday’s trading all the way to $373.05 at the open on Monday. Off-hours traders truly punished them for their plane crash, but New York traders jumped in and brought the stock up to $399.82.

Like on Friday, this all demonstrated that while off-hours trading of U.S. stocks has been prone to a bearish view, the big money is more than willing to step in and vote for the up side, even in the midst of whatever concerns have been driving off-market trading. The regular session is when the big money comes out to play, as these are U.S. stocks and U.S. indexes after all, so this overall is a nicely bullish demonstration of market sentiment.

This is exactly what the doctor ordered for the bulls’ coming down with an illness last week. On both Friday and Monday, it would be easy for U.S. market trading to just pile on to the punishment that the off-hours trading delivered, but U.S. traders ended up disagreeing pretty strongly on both occasions, especially on Monday.

What We Can Learn from This Solid Response

The pullback of last week could be viewed as a trend toward the downside or a buying opportunity, and we are seeing the latter, at least over the last two trading days. This tells us that there is a lot of money out there that still believes that the bull market is not over, and also sees the longer-term prospects of U.S. stocks as positive overall.

This is in contrast to the view of many that we may be on our last leg of the longer upward trend that started all the way back in 2009, and has slowed down lately but is still going. If the next few years will involve a reversal of fortune to a meaningful extent, no one told the investors who are jumping in here and buying this little dip.

The after-hours futures traders and foreign investors may have been seeing red, but this isn’t necessarily a bad thing if you are long U.S. stocks, at least if these gaps down are seen as buying opportunities. This has been the case the last two sessions, and in a way, this could be viewed as a stress test for the resolve of American investors, to throw them a curve and see how they handle it.

It takes more positivity to buy when things have sunk, which includes both last week’s overall performance and these off-market dips. This serves to raise the ante and get investors to show us more of their hand, and the cards that we have seen over the last two trading days are some nice ones, and a lot of money is being thrown into the pot.

The daily charts are starting to look good as well, with some key technical indicators showing us heading back in an upward direction as we seek to put together a recovery from last week. After 6 consecutive red bars, it’s also nice to see a green one of a meaningful size.

None of this little recovery was really driven much by news, other than the less than exciting news from Europe that put the hurt on things last week being priced in and stepping aside, leaving us to better discover what the market sentiment is when we don’t have anything much going on to alter the market’s natural course based upon current sentiment overall.

The skies have cleared now, and while the weather can certainly change during the rest of the week, at least the sun is back out again.