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Trading Patterns I've Observed in 39 Years in the Business Thumbnail

Trading Patterns I've Observed in 39 Years in the Business

We get asked quite a bit…..Is this the bottom or a bottom? Given the dreadful performance of all asset classes in 2022 it's a question investors are asking themselves.

I felt confident in my call that the October 14th bottom would be The Bottom….I still feel that way. Conversely, Barry Ritholtz recently penned a very interesting article on the market's tendency to bottom in March. Noting the small sample size, he pointed to the 

  • DotCom elongated bottoming period of October 2000 to the March 2003 (Iraq Invasion)
  • Great Financial Crisis of March 2009
  • COVID Pandemic of March 2020

I further felt that a Santa Claus (as I defined in the blog post of December) rally in fact would arrive with the caveat that this period is viewed as a block of time …December 15th through January 15th. Why do we define this in this way? It encompasses the tax loss selling period and also the January Effect period. So far that has lead to a return of 2.48%....modest but affirming its arrival and it’s in line with historical readings

Many investors want to take advantage of the sell off to initiate positions for 2023 and beyond.

I always look to enter a position at the best possible price. I also know that catching the absolute bottom consistently is impossible. If I’m able to identify and initiate new positions in the area of a bottom, then I feel success.

As the saying goes….if one can get ⅔ of one's buying and sell decisions right, you’ll do well.

Here are some tips and trends to be aware of to help your trading in trying to catch your bottom.

2 O’Clock Hour - Typically a lull in the trading day, particularly after a strong market opening. Potentially one can buy at better pricing for the day.

Friday - Weekend - Monday - Over the past few years institutional traders have been going into the weekend with their trading books flat and thus we find late Friday sell offs that may split over to Monday or even Tuesday.

Option Expiration week - These days are now referred to as “Quadruple Witching” days in some circles where stock option, index options, index futures and stock futures all expire on the 3rd Friday of the month. These weeks have shown maximum volatility in the week of and in many cases the exact opposite market action the week following as traders close out positions of the previous week.

Days between earnings reporting season - Corporate earnings reporting season arrives 4 times a year and is roughly 6 weeks in length.The focus is on meeting expectations, forward guidance, revenues and margins. Stocks can soar or sink depending on how the reports are perceived. The period in between earnings tends to point to other factors deemed important, mainly geopolitical events. While these factors do matter, I feel it distracts from the most important long term factor in successful investing…..corporate earnings.

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