It’s conventional wisdom that the last hour in the stock market is the battleground of the big money. Traders tend to watch it for "smart money" cues.

Frank B. would like an explanation.

There are a lot of reasons for the end of the day to be slanted toward action from the pros.

One is that many non-pro investors do their reading in the evening. They like a stock story in a newsletter or magazine and they queue up their order to get in first thing in the morning.

In contrast, bigger traders tend to wait for intra-day news and trends to show themselves. Also, if a manager has a large block of stocks to move, he does not like to signal what he’s doing early in the day. That gives his competitors too much information too soon, and it may thwart his getting the best prices.

Here’s a snippet on the last-hour pattern I found in Kiplinger’s rundown of daily stock action lately:

"I’ve been talking about it here and with some mutual fund managers," says Jim Morgan, chief investment officer of SBLI, a Massachusetts-based life insurance company with $2 billion in assets. He says "some money managers tell me they don’t want to have certain positions after a [time] cutoff. "They sell stocks in packages before the market closes so they can get their orders filled before they are exposed to losses in after-hours trading."

Also, big managers like to evaluate a lot of information before making a big shift.

Another reason for the importance of last-hour trading is that shorter-term traders and fund managers who churn positions a lot signals confidence at the end of the day. If they trust the market and their holdings, they may hold. But if they are worried about overnight news, then they will cash out. A lot of action happens when the market is closed and stocks often gap down or up the next morning.

But there are some nice data to support this belief. Brett Steenbarger, author of The Psychology of Trading and Enhancing Trader Performance, has studied the market’s hourly patterns.

Steenbarger found that since 2004, nearly three-quarters of the bull market occurred in the first hour of trading. You could have made a nice little profit it you bought stocks at the previous day’s close and sold them after the next day’s first hour. That was worth about 3800 Dow points.

The middle hours tend to do nothing much lately. They showed a small loss in the Dow, but were basically flat.

And the last hour? Since 2005, the last hour has lost money in the Dow. That’s why buying late works out-you are getting prices that tend to go down with greater selling. Then the next morning when the bulls come back, you cash in.

But the best part of all this is that Steenbarger found the last hour did have some value for indicating where the market was heading. He says the lead times may vary, but when the last hour is bullish the market tends to rise afterwards.

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