Cautioning traders about rough environments has been one of the cornerstones of Tradesight’s approach over the last decade. A lot of newer traders get so excited about trading that they don’t recognize that not all days are equal and provide equal opportunities. The Holiday season is one of those periods.
While we saw some light action last week, the outlook for the final week of the year is even worse, though it might not be apparent to the novice’s eye. Some people assume that the banks have shuffling left to do for the rest of the year, but the reality is that most of that is done. In the stock world, the funds and banks have the positions that they want to show for their end of year statements. They can’t move massive positions in a day or two, so they can’t wait until December 31. All they want at this point is price stability.
Add to that the fact that a lot of retail traders are on vacation, and this year, much of the East Coast is blanketed in the worst blizzard in half a century, and there are ample reasons that nothing great will happen. The last week of the year typically sees a 20% drop-off in stock market volume on average from the rest of December, and December so far has only averaged 1.7 billion NASDAQ shares, which is already 300 million lighter than normal. A 20% drop takes us down to 1.5 billion or less. It is often said that 800 million shares of trading volume each day is just institutions trading back and forth to each other with automated trading, so the real difference between a 1.4 billion share day and a 2.0 billion share day (the average over the last few years) is really the difference between 600 million and 1.2 billion in real trading, and that’s a big difference. You don’t see good trading activity without the volume.
Meanwhile, in the Forex marketplace, activity is about the banks, and the reality is that even though the United States doesn’t know how to relax and take a day off, the rest of the world does, and much of the rest of the world is just as relevant to overall activity and volume. US rules state that the US Stock Market and Banks must be open on December 31 for a full day unless it is a Saturday or Sunday. This is because 70 years ago, people needed the full day to be able to make final adjustments for the tax year. It’s an outdated rule, and because of it, we don’t close, but we might as well. Let me give you a preview of the week globally.
New Zealand, Australia, Great Britain, and Canada all half full day bank Holidays to continue observing Christmas. Without them, the Forex market is not going to be active.
The same four continue to have bank Holidays. Remember that while New York is active for trading and banking, Great Britain is the center of Forex. Meanwhile, the snowstorm on the East Coast also crushes New York.
No bank Holidays. There also isn’t much for economic data.
No bank Holidays, but it is the day before New Year’s Eve and people are already heading out to get where they want to be for New Year’s.
Japan, Italy, and Germany have bank Holidays for the New Year, although the rest of us, including the US, save the bank Holiday for Monday (even though the stock market will be open).
So realistically, it’s Tuesday of next week (January 4) before the world is all back to work, and we might see Forex pick up then. Stocks usually take until day THREE of the New Year, so expect that Thursday, January 6, and it could be to the downside pretty hard if the first three days are up.
Meanwhile, the benefit of being a trader is being able to take time off and enjoy life and family when the markets aren’t doing anything. As much as we hope to see you in the Trading Lab, there probably won’t be much to see there.