the dreaded overnight session

I have seen a lot of people in the US saying that the fun is had in the overnight session. To be fair this is true for me too. I am in Europe so I can trade the European day (if I get out of bed at 7am for Germany), US open at 2.30 PM, European Close at 4-4.30, US Close at 9pm and Asian Open at 1am.

I was long yesterday morning. I took some points on German and Chinese news but it was annoying to step out for lunch and come back to find world central banks have intervened and drove the indices up massively in one insane black swan of quantitative easing.

As on Monday I was scratching my head wondering what to do for the rest of the day. It is one of those things where you can be fortunate or unfortunate as the case may be so I am not going to get upset. As many experienced traders say, if you are confused then sit it out, don’t have to trade.

I knew I had to look at the overnight activity closely at least once to see what actually drives the ES after hours. This was necessary if I wanted to get anything out of a swing trade (not that this environment is any good for that but I had to know more). I waited last night to look at the correlation between the ES and the Australian ASX200.

The Australians were going to get to their desks and would face the same situation as those in the US did yesterday and as I frequently do when I watch DAX open. they were probably thinking “the market has gapped up huge overnight, what am I going to do with that? is it a continuation gap, do I fade it, do I buy more?”, the usual trader decisions basically. I felt they will likely bank some gains and see if everyone buys back into it again after the data comes out.

Here is the chart two hours into their trading day at 22.00 my time:

(sorry my charts come from different places, this is from an Australian newspaper website, the only place I could find the Australian RTH as it would have looked to traders).

They were cautious but as it happens it started to trail off slightly (as did ES). There were worse than expected Australian numbers as it headed into the Chinese PMI numbers at 1am. It was nice to look at a new instrument that seems to trade without the extreme insanity of algobots. That was until the numbers came out, worse than expected but better than the rumours and it went up – different timezone, same games.

This is how the rest of the session went until Europe:

I posted the chart to outline something that happened with ES that did not happen with the other index I was watching. The Chinese PMI was 1am and ES went up and down and returned to IBL and slighly below but was supported there near the low volume node.

The buy at 4am with 8000 contracts took it above the previous days high. This spike does not seem to be reflected in the other markets at the and I could not find any “news” which drove it so I have to presume it is a hedge fund or some other opportunist using bots to blow some stops and steal peoples short positions. The volume on ES is so light overnight that small moves elsewhere seem to be magnified and exaggerated way beyond what I expected.

Back to today and more “shennanigans” in the overnight session. The DAX sold off on open (similar to in Australia, them maybe not fully committed in the closing swing from the US session?). Draghi probably did not help when he tried to take back some of the huge pallets of money that arrived in the big truck yesterday.

LONDON (Dow Jones)–European stocks fell and the euro slipped against the dollar after comments by European Central Bank President Mario Draghi were laced with caution, tempering the positive sentiment following Wednesday’s coordinated liquidity moves by central banks.

(wsj)

The DAX 100 point move was not relatively severe (from observation daily range can be 200-300). It did not really warrant what happened with ES at the time but the ES held the LVN at 1241.5 again as it did for many hours overnight except on some news.

The smart money was fading the paper at the open today and it looked like it would hold again at todays opening swing low, so I bought it with target yesterday HOD and a very small stop, a decent Risk v Reward.

As someone told me “trade the market that is open” and as another said “the crooks will steal your money overnight”.

Some other observations from my overnight adventure:

I watched Bloomberg trumpet that the Korean index was up nearly 7% and they talked with Asian market commentators to ask them why they thought this was so. It seemed to be a *bit* more honest than CNBC and I half expected someone to say “people are buying in on the back of bullshit”, but one said “relief rally and nothing fixed”. Another said “they are just giving away cheap money”.

Here is the correlation between SPY and the ASX200 over time:

They cannot really come out and say “we just react and follow whatever happens in the US because otherwise there is huge arbitrage and we are powerless to stop it”, even though they know it is true. I would hate to trade the Asian session. They are victims who are expected to clear up after Europe and the US have a party.

I wonder how they feel about the overnight session.

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