Quick test of The ETF effect in the last trading hour.

A recent WSJ article suggests that leveraged ETF funds are affecting trading action in the final hour due to having to rebalance their positions near end of day.¬† A “cascading” effect is said to occur on days the market is significantly up or down in the final hour.

To test this idea, I ran a quick test on the last year of ES futures data using the following rules:

1. If a new high(low) is reached for the day an and there is one hour or less remaining enter Long(short).

2. Sell one minute before market close.

The results are below.

*Final profit of $6371.

*Highest profit  was 11,671

*The strategy has not made money in 2009 but still profitable overall and may be worth running additional tests.


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