Friday, February 3, 2012

Rallies or Bursts?

The chart below is a chart of the Dow Jones Industrials for Thursday and Friday using 1-minute bars. With the Friday morning pre-market announcement that the economy added 243,000 new jobs in January, the stock indices burst higher at the open. The Dow jumped about 100 points in the first few seconds of trading. It tacked on 156 points total by the close of trading. So, if two-thirds of the day’s gains come in the first 30 seconds of trading, do we call the gains a rally or a burst? Or, does it really matter? 
I only include the chart so we can all understand that while the stock indices are in rally mode, they are in effect a microwave rally mode. Big moves come in short bursts of buying. Check out the huge volume in the first minute of trading in the volume bar. Very simply put, if investors want to participate in index gains, they have to been in the day before a micro-burst of trading lifts the indices at the open. To make Friday even more impressive, the POMO action was a net seller. Now, just imagine what kind of index bursting we will see when the EU settles on a Greek debt deal! The show always starts at 9:30 AM. Don’t be late!

DJIA - 2 days (02/02/12 - 02/03 12) 1 minute bars
Chart courtesy
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. Advisory services offered through BMF Investments, Inc.

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