Now that we’re through the Thanksgiving break and quickly coming up on the Holiday Season, I thought it would be a good idea to reflect upon how these unique times affect our trading.
Here’s what happened last week (November 19 to 23, 2018):
SPY began the week with a sharp decline from the mid-273’s down to the 263’s primarily on news of the declining value of major tech players. The FAANG stocks (that’s Facebook, Apple, Amazon, Netflix and Google) carry weight in the tech sector and on the S&P 500, and when they begin leading a selloff, those sectors feel the heat. Apple was the leader last week, quickly falling into correction territory, and dragging the rest down with it on Monday and Tuesday.
As we moved into Wednesday, SPY saw a slight recovery in the premarket trading and well into the afternoon. Think of it as early Black Friday – SPY went on a massive sale and investors were keen to pick it up. SPY spent most of the day trading in the 266’s before investors sold off at the end of the day, just ahead of their Thanksgiving breaks.
We returned to trading on Friday for an abbreviated session. Investors again got right into the Black Friday shopping spirit, buying in the morning, allowing the price to climb, and then dumping just before the market closed for the weekend at 1 pm. The week closed out in the low-263’s, after falling more than $10 since the beginning of the week.
But the story doesn’t end with what happened, it continues with what didn’t happen. Last week was characterized largely by light economic news and low trading volumes. Traders, market makers and analysts took advantage of the short week for vacations. We saw little of the normal market driving forces that we normally expect. Consider Monday and Tuesday’s decline of the techs. Had those individual declines been coupled with planned news of a strong economic report, the entire sector, and SPY itself may not have felt such a strong impact. Or consider the selloffs on Wednesday and Friday. Low trading volumes exasperated the effects of these pre-weekend sales such that the days gains were effectively erased.
As we move into the holidays, we need to remember the lessons learned last week. Expect that news from individual companies will have a greater impact on days where planned news is light and expect massive selloffs before weekends and trading holidays. Plan and trade accordingly.
– Hugh W. Grossman