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Bruce,
| -----Original Message-----
| From: bruceb@xxxxxxxxxxxxx [mailto:bruceb@xxxxxxxxxxxxx]
| Sent: Wednesday, June 03, 1998 6:46 PM
| To: Neil Harrington
| Subject: RE: Some S&P Ideas & Questions
|
|
|
|
| > -----Original Message-----
| > From: Neil Harrington [mailto:njh@xxxxxxxxx]
| > Sent: Wednesday, June 03, 1998 5:27 PM
| > To: bruceb@xxxxxxxxxxxxx
| > Subject: RE: Some S&P Ideas & Questions
| >
| >
| > Bruce,
| >
| > Thanks for your thoughts. I haven't done any stringent, formal
| > analysis. It
| > comes more from common sense and thinking things through.
| >
| > Some observations:
| >
| > 1. The growing trend in the world seems to be towards global electronic
| > trading. Some other traders I know have started researching
| correlations
| > between foreign "S&P" composites and the S&P, and their
| initial research
| > shows a relationship. These points leads me to think that the
| > night session
| > will become increasingly significant.
| >
|
| 100% agreement here. Did you happen to see the article in the
| WSJ about the
| Paris futures exchange the other day? They started electronic
| trading just
| a few months ago on a trial basis. It has been so popular they TOTALLY
| CLOSED their open-outcry pits on Monday! If the boys in Chicago aren't
| careful, the world is going to pass right by them. The night
| session will
| definitely become more and more important, my previous message only dealt
| with what I had observed in the "here and now."
|
| The only caveat might be the fact that the S&P contract is a truly
| "American" product. Its movement is almost entirely predicated on the
| movement (and future outlook) of the US stock markets, which base their
| direction almost entirely on internal events (other than those that have
| national security implications). The lack of any significant response by
| the US stock markets to the turmoil in Asia over the past year makes this
| abundantly clear. A contract like wheat, on the other hand, is a product
| that is both grown and consumed worldwide, which makes its price
| much more
| prone to overseas influence.
I cannot directly disagree with your observations, but the research by
others that I mentioned above seems to be creating a case that there is
international influence on the S&P. The significance of that influence, I
don't know.
|
| > 2. All documentation of trades, whether they happen in the night or day
| > session, show a history of price action and volume, which is the raw
| > material of technical analysis. If you are missing any of that
| > history, just
| > like if you have bad data, your analysis is invalid, or at
| least based on
| > incomplete or incorrect data. You wouldn't trust your analysis or chart
| > patterns if you had a two hour gap in your day session.
| >
|
| I want to agree with you here, but that's why I was surprised (and
| disappointed) in my observational studies. By any definition of
| technical
| analysis, the movement in the night session should have a
| measurable effect
| on the day session, I just haven't seen it (yet).
|
| It may be a case of self-fulfilling prophesy. That is, the
| night session is
| currently irrelevant because so few market participants are even
| looking at
| it. Once this changes, the night session data might become as
| indispensable
| as any two hour period in the day session. I've noticed CNBC has been
| showing the S&P futures bug on the screen during their evening program
| lineup. Who knows, that might just be the break in the ice...
Well put, but since the data is there and the trend seems to be towards more
influence of the night session, makes me conclude again that you are better
off incorporating the information that excluding it from your analysis.
|
| > 3. I am not a big believer analyzing gap openings, since they
| never just
| > happen all of a sudden (to any significant degree). They happen
| > as a result
| > of consist price action during the night session.
| >
|
| I'm a little confused here. Wasn't one of the main points of
| your original
| post that the gaps SHOULD be analyzed? That a 200 point gap
| opening is less
| significant if it was preceded by a large drop from an even
| higher level in
| the night session? What did I miss?
No. My premise is that with around-the-clock trading, gap openings at the
start of the day session really aren't gaps at all. They are gaps if you
leave out the night session data, but not if you include that data (I am
talking about significant gaps here). I admit there can be dramatic news
gaps in individual stocks or sometime with indexes if it is pervasive news,
but the gaps you see in the morning really shouldn't be analyzed as gaps,
but as regular price action using all of the price action available, meaning
including the night session data.
|
| > 4. Because the night session is sparsely traded, if you are
| looking at x
| > minute bars, the patterns are indiscernible, and indicators seem
| > broken. But
| > if you look at y tick bars, the patterns and indicators are as
| discernable
| > and effective as during the day session. It just evolves over a longer
| > period of time. If you like to look at 30 minute bars, but want to try
| > ticks, just look at the average of how many ticks happen every thirty
| > minutes during the day, and use that value for the number of ticks.
| >
|
| Let me make sure you understood what I said. The bull flag bar chart
| pattern was formed entirely during the day session, so volume
| and liquidity
| weren't an issue. The pattern gives a price "target," but it
| doesn't really
| matter how it gets there, as long as the price doesn't fall
| below the bottom
| of the flag, so the subsequent breakout and up move during the
| night session
| should have validity.
|
| > 5. I cannot refute or comment on your research of the gaps and
| > flag patterns
| > that you have analyzed with and without the night session, but it
| > seems that
| > for your analysis to be complete, you should also do analysis
| on intra-day
| > data with a two-hour gap of missing data. I don't mean to be
| > facetious with
| > that comment. As I have thought about this issue more, it has
| just become
| > more apparent to me that if you don't look at the whole trading
| > history, you
| > have gaps in your data, you have gaps in price, and you have broken
| > indicators until enough time passes (based on how far back
| your indicators
| > look). I would agree that a two hour gap of data during the
| day session is
| > much more detrimental that a two hour gap in the night session, but the
| > general principle still holds, IMHO.
| >
|
| Actually, if you look closely at my previous message, the valid
| comparison
| is what happens if a breakout occurs on the day session TWICE. For
| instance, if a breakout from the bull flag trading range occurs
| during the
| day, hits the target, and then drops right back to the previous
| range, what
| happens if the price then breaks to the upside again (still
| during the day
| session)?
|
| I can tell you from experience that a second breakout from a bull flag
| (after the first one hit the target) is SIGNIFICANTLY less
| likely to hit the
| target a second time before it has violated the lower end of the trading
| range in the day session. A classic technician will tell you the simple
| reason for this is because the target was already hit! The
| pattern is not
| valid for a second move. The market may eventually go up for
| any number of
| reasons, but not because of the pattern (in the eyes of a
| classic chartist)
|
| What I said in my last message is that a breakout from a bull
| flag (created
| during the day session) and a subsequent up move to the
| projected target in
| the night session (which is then followed by a drop back to the trading
| range) seems to have no discernable affect on a second breakout
| during the
| NEXT day session. This second breakout is just as likely to be
| successful
| as if the first breakout in the night session had never occurred.
|
| I hope I haven't thoroughly confused you!
|
| > I have many requests to post this thread to the list. Do you mind
| > if I post
| > this to the list?
| >
|
| Sure, go ahead. I only emailed you directly because it seemed to be a
| little off-topic, but if there's enough interest, I'd love to
| hear some more
| opinions.
|
|
| > Thanks for making me think through my ideas. Please reply with your
| > thoughts.
| >
|
| Thank you too. If I haven't already made it clear, nobody hopes
| more than
| myself that I'm completely wrong about the night session (or
| will be soon as
| volume grows). Analysis of the night session could provide a significant
| edge to those of us who do it. In a zero sum game, any potential edge
| cannot be overlooked!
I totally agree.
Neil
|
| Bruce
|
|