Some things change, and some things don't.
I'm on central time and so was the traditional call-and-place-my-order broker I used back then. The New York markets were an hour ahead, of course. What was lunchtime to me was the period when market makers and New York traders were likely returning from lunch. When I kept having to hunt down my broker or one of his co-workers during lunchtime to close or open a trade, I started paying attention to what was happening. I at first called what I was observing a stop-running period. I have written about this period from time to time in the intervening years.
Why am I writing about it again? Lately, when I was closely monitoring a trade I was trying to adjust, I noticed that pattern again. Now that I know more about trading and no longer have such a me-versus-them attitude about market makers and institutional traders, I no longer call the period of time a stop-running period of time. I now think of it as a testing period.
Annotated Five-Minute Chart of the OEX on 7/21/09:
This test resulted in a spring up from the low, followed by a green candle. Bullish divergence was completed with a higher RSI high on a lower price high.
When I dive down to short intervals to watch the OEX, I actually prefer watching it on a 7-minute chart, using nested Keltner channels.
Annotated 7-Minute Chart of the OEX on 7/21:
Divergences and tests of channel support or resistance aren't the only guides to interpreting the after-lunch test results. Coordinating volume behavior with the result can also offer hints.
On 7/23, some signs pointed to distribution in the period as institutional traders returned from lunch, resulting in a test of support. Bears were no more successful than bulls had been, though, warning any who had entered short-term bearish trades that bulls and bears were still rather evenly matched for the time being. Not for long, however.
Annotated 5-Minute Chart of the SMH on 7/23:
Why did I say that the bigger-than-recent volume indicated that there was some selling on that candle? That was because the candle left an upper shadow behind, so sellers were overwhelming the buyers, resulting in a pullback in price. That was confirmed when the next candle was a red one.
If you're day trading or are closely monitoring a longer-term trade that may need adjusting, prepare yourself for these after-lunch tests of support or resistance. Know that what you're watching is a test and understand that the outcome may not be decided just because support or resistance is pierced. Use your preferred technical analysis tools to help you decipher what's going on.
Depending on your trade, the risk you're taking, the size of your trade versus your portfolio and your own risk-tolerance level, you may want to widen stops to allow the test to occur or wait out the close of at least a five-minute candle before you make a decision about exiting. Some may decide on a different tactic, closing out a day trade before the lunchtime lull hits and then reopening it or not, depending on the action that occurs after traders return. Income traders with a trade close to an adjustment point must decide whether to sit out that test or go ahead and adjust before the test occurs.
There is no right or wrong way. If big money must perform these tests from time to time to decide whether support or resistance will hold, we "little money" people can't know the results when we have even less access to information. What we can do is prepare for these tests by realizing that they will occur from time to time and making account-appropriate decisions before they do. Then we should watch and use the tools we trust to evaluate the results. You can bet big-money or institutional traders are studying the results, too.