An increase in buying pressure in the last hour of trading
Key points:
- The last-hour indicator increased for seven consecutive sessions
- After similar periods of late-day buying pressure, the S&P 500 showed a consistent upward bias
Buying pressure is outpacing selling pressure in the last hour of trading
A resurgence amongst traders and investors to cover shorts or accumulate stocks late in the day sent the last-hour indicator meaningfully higher over the last five months.
The indicator, a cumulative advance-decline line for the last hour of trading, measures whether buyers or sellers dominate the most critical time frame of the day.
The buying pressure accelerated last week when the last hour of trading recorded seven consecutive higher closes.
Consistent buying pressure in the last hour of trading is typically a characteristic of bull markets as investors seek to avoid the overnight upward drift in stocks.
To read more about this indicator and a strategy derived from it, see the research report titled A Sell Signal in the Cumulative Advance-Decline Line for the Last Hour of Trading.
Similar periods of late-day buying pressure preceded positive returns
When the last-hour indicator increases for seven consecutive sessions, the S&P 500 rallied consistently across all time frames with solid win rates and z-scores. A month later, the index was higher 82% of the time and recorded 17 consecutive profitable signals between 2006 and 2019.
In the 2000-02 bear market, the signal showed a gain in 3 out of 4 cases over the next month. And in 2007-08, it avoided an alert as consistent buying pressure never materialized.
What the research tells us...
Over the previous five months, the last-hour indicator has steadily risen as buying pressure outpaced selling pressure in the last hour of trading. Last week, the buying accelerated, with seven consecutive increases for the S&P 500 in the final hour. After similar win streaks, the large-cap index exhibited solid returns, win rates, and z-scores, especially a month later.