I have shown the study below a several times in the past, but not for a while. It examines the recent performance in the overnight futures market on nights the Employment Report has been released since the summer of 2012. The Employment Report is released at 8:30 AM Eastern (normally the 1st Friday of the month) and it is often followed by a quick move in the futures. This will typically mean increased overnight activity and a more volatile open. Over the last 3 years that volatile open has been to the benefit of the bulls. This can be seen in the study below.
The numbers here all strongly favor the bullish case. ES has gapped up 72% of the time and the gross overnight gains have been nearly 4x the gross overnight losses. Below is a profit curve to see how the edge has played out over time.
Despite some up and down in recent months, that is a pretty straight line – an encouraging sign for the bull case. Of course while the Employment Report will be a big factor in where the market gaps tomorrow, there will be other factors to consider as well. I’ll consider everything at my disposal (Odds Sheet, EdgeFinder studies, etc.) before making a decision. Traders that do take an overnight trade should be prepared for increased volatility and have a plan on how they wish to handle it.
It is also worth noting that the last 3 years have not been typical. The market has seen a number of hot and cold streaks with regards to the employment report over the years. The current streak is strong, but I still just consider it a streak – not a time-tested edge. To see why I say this, check out the curve below, which goes back to 2000 and puts it in perspective.
I will discuss this in more detail along with live trading analysis at the ‘Intro To Overnight Edges’ live webinar today at 3:30pm EST. (click for more details & to register)