Why do so many stocks sell in the last hour of trading days?

4 Answers

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   Rick B on May 12, 2011 Reply

   There are “day traders” who buy or sell stock during the day but have to close out their position by the close of the market. In other words, if they bought stock in X during the day, they sell that stock before the end of the day or vice versa. They are betting the stock price in the stock will go up during the day (if they initially bought it) or go down (if they initially sold it). There are others who just have a herd mentality and at the end of the day don’t want to be left out when everyone else is buying or selling.

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   muncie birder on May 12, 2011 Reply

   One possible explanation is that mutual funds can be asked to redeem shares. If during the day a lot of redemptions pour into the mutual fund, the fund may be force to sell shares. The redemption requests have to be made prior to the market closing. As they flood in, as no doubt they have been doing, that puts the fund into the position of having to sell shares to meet the request. They probably wait until very late to begin selling to see how much they are going to have to dump.

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   jeff410 on May 12, 2011 Reply

   Program trading. Institutional trading investment models kick in at some point and triggers program trading.

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   robe on May 12, 2011 Reply

   There are several reasons:

   1. Fund redemptions due to holders wanting to cash out. I wouldn’t place a lot of weight on this, because hedge funds work both sides of the market, and I think this has run its course more than people let on.

   2. Volatility. The more unstable market confidence is, the more people will tend to buy in/sell when the market swings up hard, and buy down/sell (with inverse funds and shorting) when the market drops. The stock is moving so fast the opportunity to make quick returns without long exposure is very high. Since everyone is not buying simultaneously, but at random, this puts a lot of “wave action” in the price during unstable times like these, when “buy and hold” is not a sound strategy for making money, or even for protecting money.

   3. Lower volume. Since there is so much money on the sidelines, low volume is the result. In low volume markets, even a small position change can start the price moving more briskly in one direction. The lower the volume, the more a stock tends to move in one direction for a little longer than normal. This is seen more in mid-day patterns when less people trade.

   4. Volume period. The best time of the day to trade is when – whether a light volume or heavy volume day – the market has the most people involved to support the price. The most productive time period where the pros get involved is in the afternoon, because they want to be in a position to maximize returns for that day, but also “read” the pattern as to whether to leave their money in over night based on the pattern of trading for a given afternoon. This makes their money go farther, without always having to pull the investment (sell) at the end of the trading day. Strong finishes in one direction as the high and close of the day, or the low and close of the day, bring more overnight holds of stock positions, since the trend is more likely to continue via inertia the next day.

   5. The most productive positive trades the last several weeks have been in the 2PM – 3PM time slot. It used to be after 3PM, once the margin calls had all cleared, etc. – which can pull the price down. In today’s more volatile market, post 3PM, as you point out above, is not consistently supportive. Based on the last few days, a straddle position would have worked well, stopping out on the one that is set up on the wrong side, while the other runs hot with the market. Don’t ever forget that people are making money on both sides of the trade.

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