Open Red and Close Green

There is an old saying among longtime Wall Street traders, “ amateurs open markets and pros close ‘em.” Frequently, events overnight result in volatility in initial price movements the next morning. Then, cooler heads prevail as the day’s trading session ages. Professionals tend to observe the gyrations, waiting for signals the movement has created an exploitable opportunity.

In my later years on the Institutional Desk, many of the Institutions I covered were wary of early price action and did not trade in the first 15 minutes of the daily opening. One gray-haired Portfolio Manager I covered purposely arrived at work one half-hour after the open, thereby reducing the risk of an emotional, knee-jerk reaction to one of his holding’s volatility.

Similar to the old saying (above), an indicator of the market’s shorter team health can be seen in its ability to repeatedly shrug off a negative opening and close flat or higher. This is a “tell” on the market’s ability to weather incremental bad news. This pattern suggests an underlying bid for stocks. All else being equal, healthy markets “open red and close green”.

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