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| -----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.
|
| > 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...
|
| > 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?
|
| > 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!
|
| Bruce
|
|