Wait Till the Midnight Hour

Here is a prolonged puzzle. Over the last quarter-century, trading during market hours in the U.S. stock market has lost money. This is true even though the stock market as a whole has, as we know, risen impressively over that period.

The reason for this is that almost all the price action happens at the open. This chart from Ned Davis Research Inc. shows the phenomenon clearly enough. Davis refers to it as the “Goodnight Moon trade.” The black line is what you would make if you bought at each day’s closing price, and sold immediately after the following day’s opening. The red line is how you fared trading at all other times during the day.

Source: Bloomberg

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