By: Steve Sosnick, Chief Strategist
The other morning, someone asked me why we were trading higher. I made the flippant comment, “they rang the opening bell, that’s why.” Taking that a step further, on a morning when stocks are higher on a rally that began modestly in the pre-market but accelerated rapidly after the regular session opened, it is reasonable to wonder whether there is indeed a Pavlovian quality to the current market environment.
For those of you who might be unfamiliar with Pavlov and his experiments, here’s a brief primer. Around the turn of the 20th century, Ivan Pavlov ran a now-famous experiment1 where he showed that “dogs could be conditioned to salivate at the sound of a bell if that sound was repeatedly presented at the same time that they were given food.”
In short, Pavlov’s dogs became conditioned to associate a bell with a reward. Does that sound all that different from equity traders right now?
This brings about a bit of a follow-up question: why wait until the bell rings when there is active futures trading in the pre-market? The chart below shows how December ES (S&P 500 E-mini) futures began trading higher throughout the early morning in the US, then accelerated sharply once 9:30 EDT rolled around.
Some of this morning’s move in the regular session could have been technical in nature. The stock orders that were filled on or just after the opening bell were enough to push ES futures to new intraday highs, presumably triggering some stop-loss orders that further accelerated the gains. But there was no fresh news to propel stocks at that particular moment.
The ostensible reason for the rally was that there were perceptions that the trade disagreements between the US and China were softening. The President made relatively conciliatory comments over the weekend, and it appears that a high-level meeting between the US Treasury Secretary and the Chinese Vice Premier may be in the cards for this week. Those are certainly good reasons for a positive outlook on stocks, especially in the absence of government data and sparse Monday morning earnings reports ahead of a busy week on the earnings front.
Why though, did we take another leg higher as soon as the bell rang and why is this a common occurrence? Three factors come to mind.
- First, it is typical for less active investors to place stock orders during hours when the markets are closed for execution upon the open. If these orders are to the buy side, particularly in ETFs or large-cap stocks, then it is understandable why they could lift indices.
- Options markets open too. Although there are popular options like SPX that have overnight hours, options on stocks do not. A rush of call options buying shortly after the open can accelerate a market’s upward tendency.
- Algorithms are more likely to use regular trading hours than pre-markets. Those that follow intraday uptrends can further amplify a nascent move.
Bottom line – there are several conditions that make it easier for a market that is already displaying positive momentum to accelerate that momentum.
Also, looking at the chart above, I’m reminded of another bell that could yield a Pavlovian response among traders – one’s alarm clock. Note that ES took a leg higher in the early hours for US-based traders. I put forth this rubric in May, and I believe it holds today:
- Let pesky foreigners sell overnight
- Wake up and buy futures (optional: make coffee, brush teeth, shower)
- Watch for 8:30 economic news
- If positive, buy more
- If negative, wait for dip, then buy more
- Chase rallying markets after stock market opens
- Rinse, repeat
Item #3 in the list above is off the table during the government shutdown, but the other items remain in effect. Pavlov’s dogs learned to anticipate a reward when the bells rang. So have stock traders.
*One other note: today is the 38th birthday of the “Fed Put.” I gave a talk about that at last weekend’s MoneyShow conference. It was based upon a piece that I wrote three years ago, which is available here: Happy 35th Birthday, Fed Put | Traders’ Insight2
Originally posted on October 20, 2025 on Traders’ Insight
PHOTO CREDIT: https://www.shutterstock.com/g/FasionGirlVector
VIA SHUTTERSTOCK
FOOTNOTES AND SOURCES
1https://www.simplypsychology.org/pavlov.html
2https://www.interactivebrokers.com/campus/traders-insight/securities/macro/happy-35th-birthday-fed-put
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