So You Want to Know About - The ASX Aftermarket
Useless Afterthought, or Canary in the Coal Mine?
The Aftermarket.
What a magical time. This 30 minute period sees the most contracts traded in the entire 24 hour period of the SPI Futures trading period, out-doing the next highest hourly period by over 60%! This really is when the big boys square up their ledgers for the day.
I’ve known SPI traders who trade ONLY the match (ie usually the 4:09/4:10 period to be exact), given the volume and volatility that can go along with it. That’s it. That’s their entire day. I have tried this in the past and am sure there’s an edge there, but not for me.
Let’s ask AI what they have to say about this period:
“Between 4:00 pm and 4:30 pm, the Australian Securities Exchange (ASX) undergoes specific processes that transition the market from its regular trading session to after-hours activities, particularly concerning the S&P/ASX 200 Index Futures (commonly known as SPI futures). Here's an overview of what occurs during this period:
**4:00 pm – ASX Market Close:**
At 4:00 pm, the ASX equity market concludes its regular trading session. However, this isn't an immediate cessation of all trading activities. The market enters a phase known as the "Closing Single Price Auction" or "The Match." During this 10-minute window, from 4:00 pm to 4:10 pm, investors can place orders to buy or sell shares at the closing price. The ASX's trading system aggregates these orders to determine a final closing price for each security. This process ensures an orderly and fair determination of closing prices, accommodating any residual trading interest.
**4:10 pm – Closing Single Price Auction:**
At 4:10 pm, the ASX finalizes the closing prices based on the orders collected during "The Match." This auction mechanism establishes the official closing prices for all listed securities. It's a critical process as these prices serve as benchmarks for various financial instruments and indices.
**4:10 pm to 4:30 pm – SPI Futures Trading Continues:**
While the ASX equity market has concluded its activities by 4:10 pm, trading in SPI futures extends until 4:30 pm. This additional 20-minute trading window allows market participants to react to the finalized closing prices and adjust their futures positions accordingly. The SPI futures market provides insights into market sentiment and potential overnight movements, as it remains active even after the physical market has closed.
**Key Points to Note:**
- **Impact of Futures on Closing Prices:** The trading activity in SPI futures between 4:00 pm and 4:10 pm can influence the closing prices of underlying securities. Significant movements in futures during this period may lead to arbitrage opportunities, where traders buy or sell futures and the corresponding underlying securities to profit from price discrepancies. Such activities can affect the final prices determined during the Closing Single Price Auction.
- **Contract Specifications:** Each SPI futures contract represents a value calculated by multiplying $25 by the index level. For instance, if the S&P/ASX 200 Index is at 7,200 points, one SPI futures contract would equate to a notional value of $180,000. This leverage allows traders to gain significant exposure to the market with a relatively small capital outlay.
Understanding these processes is essential for traders and investors, as the activities between 4:00 pm and 4:30 pm can have implications for portfolio valuations, risk management strategies, and insights into market dynamics leading into the next trading session. “
The ASX actually has quite an interesting paper on Market Dynamics here.
WHAT THE DATA SAYS
This period can give valuable clues to the sentiment and likely behavior of big market players. A positive aftermarket move for example, often reflects a broader risk-on sentiment across global markets, signalling that investors are seeking higher returns in global equities and other riskier assets as the sun sets on ours.
Let’s say we get a huge aftermarket move higher. How can we extend this to an edge in the AUS200 itself?
You can see that, unsurprisingly, a bullish aftermarket translates into a bullish overnight session, on average (The edge is even more prominent for Aftermarket collapses). Average overnight move is +17pts, average to move to overnight highs are +49pts, with an average range of 72pts. These parameters, alongside the data we mine around clusters of times of overnight highs and lows can help shape your trading strategies.
But can keeping an eye on these moves help shape your trading for the upcoming overseas markets? Or asked another way, can traders in the USA for instance use moves in the little Aussie battler to get ahead of the big boys? In my opinion, absolutely.
I am a firm believer that we get to trade in the best timezone in the world. Being the first major market to open has major advantages, as human biases and behaviours of big market players in the first major market to open and close for the day, are often the same biases and behaviour of the big market participants in the UK / US when they wake up for their session. It’s not rocket science.
As an example, lets take a look at days when the SPX has rallied, our market opens and AUS guys don’t get overly excited (say, a RTH move of +20 or below), and then we see an aftermarket fall.
This price action in our market suggests local and international funds are heading for the exit and keen to de-risk and take profit after the prior day run-up. Historically we subsequently have seen significant market falls on the SPX over the next 16 hours, with an average move of 72pts to day lows and multiple 100pts overnight falls following the AUS canary in the coal mine.
So there you go. That 30 minute period after your favourite stocks stop trading may be worth keeping an eye on after all. Interestingly, the majority of the largest aftermarket rallies, and the TOP 5 largest aftermarket falls in the past 5 years have occurred on either the last, or second last day of the trading month, with the big daddy occurring on the 30th November 2021, when the AUS200 dropped an incredible 88 points in the 30 minute period, and finished ~57pts lower!
Oh, and by the way, the FTSE & the SPX both hit 100pts lower later that day😉.
As always, keen to hear any other perspectives / strategies from you guys.
Cheers
Marto
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