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Thursday, December 22, 2016

About Holiday Trading

Holiday Trading 

Bah humbug! 

Trading into, and over a long holiday:

Whether it's Christmas, Hanukkah, or the 4th of July, holiday trading typically sucks, especially for the bears. Although there may be exceptions to the rule, this is the case 90% of the time! The Pro's know better than to go short into a long holiday, and the retail bear should follow their lead.

You've probably heard the term, "never sell a dull market"? That means you, retail short seller.

You've probably also heard the term, "thinly traded markets"?  With so many traders on vacation, volume, and volatility typically remain low. Low volatility = no fear.  No fear = no panic *selling. *The exception to the rule would be if the $VIX were to find it's legs. Crazy things can happen in thinly traded markets, but seldom do. 

Holiday trading is notoriously difficult to predict, and I know some traders close down shop early, just to avoid it all together.

What you typically see is short covering going into a holiday. You can think of it as the, "risk off trade", for bears.  You typically don't put on a bunch of bearish bets, before heading to the slopes, unless you're hedging your long positions. If the smart money has already covered their short bets, this leaves the retail short left holding the bag.

This holiday season we saw short covering ahead of Thanksgiving, and more short covering into Christmas, and today thinly traded markets continue to hold up (at or above resistance which for now is *support).
For instance: Brent crude continues to hold above key support. It's not that there is any reason to be bullish on crude oil, it's just that the bears are vastly outnumbered in this market environment. Some of this may also have to do with Crude Oil contract expiration dates, a topic for another time. $USD is also seen holding up above *support.    

The NASDAQ sitting on what looks like *support

[Edit 12/2316: Support on Brent crude - as it turns out - is just above 53.73, looking at yesterday's candlestick chart]

There are a couple additional factors holding markets up into the end of the quarter/year.

  1. December is a big window dressing month, and a lot of money has been reallocated into financial stocks (aka financials), and building a top after a strong rally, is much like building a base after a sharp decline. Both take time - usually several weeks.   
  2. Fund managers don't want to have to pay taxes on massive 2016 gains, so they're waiting for 2017.
When traders return from holiday, the bulls should be forced to continue chasing performance, but if instead we see profit taking, and the $VIX get it's legs, that would be the time to sell. Watch the week of Friday the 13th.
Part of market timing is knowing when and when not to trade. If you've found yourself fighting this entire rally, you know exactly what I mean.

*For advanced traders this is no place to become complacent, because this level becomes your stop hunt. Definition of Stop Hunting   

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