Golden Last Hour Trading

Aug 1, 2007: 6:40 PM CST

The last hour of the trading day is becoming ‘golden’ in the sense that volatility and range become rampant as traders struggle for position before the close.Today’s action was a reverse of yesterday’s down action in the last hour… only this time, the 250 point sudden increase in the Dow took place over the last 30 minutes of trading. For specifics, the Dow Jones Index showed 13,150 just before 3:30pm (Eastern) and if you blinked, you missed the Index reaching 7 points shy of 13,400.

While there will be many posts regarding this action, I thought Arthur Hogan (article link here) summarized the action – as well as the overall market – in his quote:

“We’ve got a tug-of-war going on. We’ve got that dichotomy between fear and greed. This is greed kicking in,” he said of the rush of last-minute buy orders.

“You get to a point where are you more afraid of the fallout from credit spreads or are you more afraid of missing the market bottom?,” he said of investor sentiment. “I think it’s going to be a recurring pattern over the next several weeks,” Hogan said of Wednesday’s volatility.

Analysts attribute the ‘last hour buying’ to various hedge funds, or even simultaneous market buying programs.  Regardless of the reason, many day traders (and I suspect even swing traders) were taken by surprise, especially those who were short stocks or market ETFs going into that last hour.  I’m not sure the action could have been forecast or predicted by any retail trader – correct me if I’m wrong here.

Just like yesterday’s charts provided an educational example of market volatility, today’s chart does the same:

Dow Jones 5 minute Chart:

dow-intraday-a1.jpg

Dow Jones 60 minute (hourly) chart:

dow-60m-a1.jpg

I mentioned the positive momentum divergence forming on the longer term intraday charts and perhaps this a partial resolution of that divergence.  Both the RSI and the 3/10 Oscillator are showing crystal clear ‘textbook’ divergences worth studying.  This indicates odds have shifted to favor higher prices in the short term.

Perhaps the pressures of ‘greed’ in the sense of “I can’t miss out on such good prices while the market goes up!” has overtaken the ‘fears’ of investors worried about lower prices ahead.  Either way, the momentum clearly speaks in favor of the buyers now, as selling pressure appears to be drying up in the short term.

Times like these make trading fun.  What a way to start off August!

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