It is Friday. I'll get to the significance of that in a minute. Let's first see how Thursday left us standing.
Over the past 14 trading days, the S&P 500 has closed down on 10 of them. It has dropped only 4% from the early August high. According to the reformed BROKER's article A Field Guide to Stock Market Corrections, this so far is merely a “whatever” pullback.
The S&P has traded within a tight sideways range for the past 4 days. The Stochastics is showing a possible cycle low and buy signal, and if it forms here it would be right on schedule, in view of recent cycles. The S&P also is sitting on the bottom of the Bollinger Bands, from which it has rebounded nicely the five or so times it previously touched the bottom.
But back to Friday. Should you take a chance playing a rebound today? Let's look at the plusses and minuses of this approach.
– From Wikipedia, “In some cultures, Friday is considered unlucky. This is particularly so in maritime circles; perhaps the most enduring sailing superstition is that it is unlucky to begin a voyage on a Friday.“
– Fridays are typically not the best day to enter new long positions, whether in the overall market or many individual stocks. Suppose you were interested in making a bullish trade on the NASDAQ-100 ETF, QQQ. Assuming the NASDAQ will stay up and running today (it didn't do well at that yesterday), here is the track record of going long QQQ on each day of this week and exiting on Friday, 5 weeks from now:
(Are you sure you don't want to wait until Monday?)
– Significant moves can happen at the open on Mondays. Market participants had a weekend to reflect on the markets, events, and current conditions. They've had a whole two extra days, and perhaps several scotch and sodas, to come to radical conclusions about what will happen in the coming week and what they should do. Those decisions may not match your positions.
– Experienced option traders know that long options usually have three days of time decay priced into them, usually on Friday mornings. Friday mornings are not the best time to enter debit option trades.
– But on the plus side, Wikipedia also states “However, this superstition is not universal, notably in Scottish Gaelic culture:“
“Though Friday has always been held an unlucky day in many Christian countries, still in the Hebrides it is supposed that it is a lucky day for sowing the seed. Good Friday in particular is a favourite day for potato planting—even strict Roman Catholics make a point of planting a bucketful on that day. Probably the idea is that as the Resurrection followed the Crucifixion, and Burial so too in the case of the seed, and after death will come life.“
So what should you do instead on Friday's? You could paint the deck and watch it dry. You could consider the odds on ‘Authenticity' running in the 10th race at Saratoga on Sunday ($600,000 purse). You could read Ben Bernanke's 1979 Ph. D Thesis ‘Long-term commitments, dynamic optimization, and the business cycle' (available at dspace.mit.edu. Ignore the misspellings on the page) – that'll get your mind off the markets.
Or you could spend the time looking at your recent trades, what worked, what didn't and why, and you could refine your watchlist. What positions have been the strongest? It may be a good time to pare back the weaker positions and get ready for good setups that present themselves this week.
But it may not be the best day to initiate new trades. It may be a good day to plant potatoes.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, type in www.markettamer.com/seasonal-forecaster
Copyright (C) 2013 Stock & Options Training LLC
Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.
Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.
Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.
As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.
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