Last 30 minutes of trading and overnight gaps

Vladimir Daragan
STTA Consulting

We will study the correlation between the stock price changes during the last 30 minutes of trading and the following overnight price gaps. As an example the QQQ index shares (NASDAQ-100) will be considered. The results of our analysis based on the intraday price file which is published in our journal (publication 06-05). The file presents historical 15 min interval prices of QQQ for the period from March 1999 to September 2001. This period covers the bull and the bear behavior of this index.

We considered three time periods

D30 = P(16:00) - P(15:30)   price change during the last 30 minutes

D15 = P(16:00) - P(15:45)   price change during the last 15 minutes

Overnight Gap = P'(9:30) - P(16:00)       overnight price gap

where P(t) is intraday price, P(16:00) is the closing price, P'(9:30) is the opening price on the next day.

The average overnight gap for QQQ for this period of time is equal to 0.27%

The next table presents the values of gaps for various combinations of D30 and D15.

 
The standard deviations are shown in parenthesizes. One can see that the maximal positive price gap is observed when D15 < 0 and  D30 > 0, i.e. when the total trend for the last 30 minutes is positive but during the last 15 minutes one can observe a small price drop. In this case the average overnight price gap is two times larger than the average.

The smallest price gap one observes when the stock price is rising up to the closing bell, i.e. D15 > 0 and D30 > 0. In this case small or negative overnight gaps are highly probable.