By: Chris Rowe — November 23, 2021
Seasonal Buying/Selling The Week of Thanksgiving
I’m thankful for the health of my family and friends. I’m thankful we’re all going to be together again this year.
And I know that why I’m thankful for these things needs no explanation.
I’m thankful for you too. All of you. And I hope your Holidays are full of joy.
And I think the holiday spirit will continue to lift the market this week and beyond, as it seasonally does.
These are about the only times of the year when I can still really like a stock pick even if it's not backed by the trading volume I’m always telling you to look for.
I think conventional thinking would suggest a "keep your powder dry" approach during a short, light volume holiday week. But there is more to think about here.
It can be confusing for investors because November is typically a strong month. Traders can be on high alert for trade opportunities—and they’re right to be. But trading volume can also be light the week of Thanksgiving.
I’ve always warned about price gains that happen on light volume (fewer than the average amount of shares traded). It’s often a precursor to a coming price decline when a stock or index is topping out. The old adage is “Volume = Validity!”
As a reminder, you may recall when I warned you to avoid Netflix (NFLX) and Tesla (TSLA) at all costs.
Generally speaking, if a stock or index is going up, owners want to see high volume. This would mean that the upward move is valid and there is a higher probability that the uptrend is not yet ready to reverse lower. When a stock or index does decline, owners like to see that the downward price move is happening on lower than average volume.
But there’s one caveat that I need you to know about. The end-of-year holiday season tends to be accompanied by light volume—it’s just the nature of the beast. But from a seasonal perspective, November through January is the strongest 3-month period of the year.
So, it’s typical during this time of the year to see upward price movements along with light volume… And even though this is usually a red flag, I’m more inclined to shrug off that light volume price-advance and I’m more open minded to seeing stocks advance.
The reason for this article?
I worry about traders making poor SELL decisions due to the light volume we can sometimes see during this week. Hitting the panic button on light volume can lead to missed opportunities for considerable gains in a strong December.
The stock market has given us all a lot this year. I explained my current stance on the market in my November 9th, 2021 article.
How The Market Teed Us Up For This Week
Let’s review what happened last week briefly, and then look at what has happened the week before Thanksgiving in past years.
The NASDAQ Composite ($COMP) hit a new all-time high to end last week at $16,121.12.
(Click any image to enlarge.)
The Russell 2000 (RUT) didn’t fare as well as the NASDAQ, correcting another -2.8% last week.
And the S&P 500 INDEX (SPX) just didn’t do much at all, ending the week up +0.18%.
For the last 28 years, the bull and bear trends of the week before Thanksgiving have basically been a toss up for the major market indices. Take a look at the seasonal trends, below.
|Up Years||Average gain|
|S&P 500 (SPX)||16 out of 28||+0.24%|
|NASDAQ 100 ($COMP)||16 out of 28||+0.28%|
|Russell 2000 (RUT)||15 out of 28||+0.54%|
Short-Term Traders Vs Long-Term Traders
So, what does that mean for traders?
For shorter-term traders, the smart approach in recent years—from a seasonal perspective—is to be long to start the week and sell on the shortened trading day this Friday.
Next week, when volume comes pouring back in, you may see many stocks revert back to their averages.
For longer-term traders, it’s a different story.
While small-cap stocks struggled a little last week and the rally in the S&P 500 stalled, all signs point towards strength to come.
Plus, this time of year tends to be the strongest season for the stock market. Everyone is buying presents, booking travel, and setting their portfolios up for a robust 2022.
Which creates great opportunities for traders.
Take a look at the stocks I reviewed right before last Thanksgiving in my November 17th, 2020 article.
As an example, look at Sunrun Inc. (RUN) from the article last year. It went up more than 72% from November 17th to January 12th. And volume was declining when I mentioned it.
And then a more than 147% increase on VivoPower International PLC (VVPR).
So, we can say in the world of market analysis we have some important, and classic, caveats to keep in mind.
The most basic and important rule of technical analysis is the importance of price/volume activity.
It’s simple. Volume = validity.
You can gain a sense of whether a stock is likely to go up or down just by comparing the volume and price direction. If the stock moves higher during time periods when volume is heavy (above average number of shares were traded), then you can bet the stock is more likely to continue higher within the next larger trend.
That is, you’ll repeatedly see short-term price spikes higher followed by short-term price declines, but the ultimate longer-term trend is upward. The trend is higher highs and higher lows but when the stock price advances, a significant increase in volume means the stock is advancing because of very eager and anxious buyers.
On the other hand, if you notice that volume that’s traded on a stock is getting lighter and lighter (below average number of shares were traded) while that stock is still moving higher, think of it as a stock that’s running out of gas and needs to take a break.
If the volume is lighter as the stock is advancing, the buying has subsided and it’s only going higher because sellers haven’t really “started their engines” yet. That’s what we saw when I sent you this urgent message to stay away from Netflix (NFLX) and Tesla (TSLA)
While the year is coming to a close soon, there are still a lot of trading opportunities to come before it’s over.
So, worry more about stuffing yourself this Thursday and catching up with family than buying and selling.
But plan on hitting it hard next week and through December. We have a Santa Claus rally to prepare for.
And if you really want to understand volume trading, then learn how unusual option volume activity can change everything for you.
Founder, CEO at True Market Insiders