Weekend Update: Black Friday Massacre?


This week is Thanksgiving week, a normally light and uneventful trading week. In fact, according to Jeff Hirsch, editor of the Stock Trader’s Almanac, 

"Over the last 22 years, DJIA has advanced 72.7% of the time during the week. DJIA has gained an average of 0.61% to S&P 500 0.30%.

Such is not the case in global markets as they will be open for business as usual. With all global markets, including our own, trading pretty much as one this past year, the week ahead could be problematic for our markets. If the bond and equity markets around the world, especially Asian markets, were to enter into a chain reaction financial event to the downside between Wednesday night and Thursday night, what would our markets look like the morning after our Thanksgiving dinner?

One more concern about Black Friday: If this biggest sales day of the year comes in below expectations it could trigger its own market event, only it will likely then become a Black Monday.

No matter how implausible such an event might be, is it so far-fetched as to not take into consideration as we move forward into Thanksgiving week? Potential is just that, potential, but it is better to be aware, and ready, then not. 

What distinguishes this particular time window is that markets have just broken down below major long term trend lines and still not that much below near record bullish sentient readings, a reliable contrarian indicator going back to the great financial crash of 1929. In addition, volatility has taken charge. This past Friday the Dow went from unchanged to +200 points in 15 minutes all because of the President made some encouraging statements about China and trade: 

Trump China Comments Spark Algo Buying-Panic

Thirty minutes later, back close to break-even:

Stocks Sink As Humans Realize Trump's China Comments Meant Nothing

To top it all off, on Saturday morning, with the markets closed:

Pence, Xi Showdown Crushes Hopes For Trade War De-escalation

Finally, the 2018 G20 Buenos Aires summit is set more Nov 30-Dec 1. The trade war rattling crescendo could extend the black news event window until then.

These are not ordinary times, this is not a rational market, and as our previous pattern recognition analysis has warned, we are in an identifiable pattern that has coincided with previous market panics, i.e., Waves 3 of 3 down. Despite this week's rally (of sorts), that set-up is still in place. With multiple news-event windows coming up the next two weeks, any one of which can shatter global markets, how profoundly one or more could affect our markets is a big unknown, but the five charts below suggest that the range is from bleak, to bleaker, to bleakest.

S&P 500


NYSE Composite Index



Global Markets - The Trend Is Your Friend



New Sell Signal: LUV; Jan $52.50p 

This weekend's table includes two new columns, "Price and Return at Expiration." This is the Buy & Hold results if no profits were taken along the way, if each trade was held to expiration. Compared to the "Highest Return" results (at least for November) , it makes a strong case for using stops, both taking profits along the way and in limiting losses. In this market environment I still remain in favor of leaving at least something in a position for those trades that periodically generate outsized gains.