There’s little reason to doubt that the Friday-Monday Effect won’t dominate market action today. For those who missed Friday’s reports, the Friday Effect says that when the market ends on a strong up move on Friday, that trend continues on Monday. The same thing often happens on the downside as well.
Asian markets have already pushed the September E-mini S&P to a new all-time high of 1694 on Sunday evening US time. Many careful observers have noticed that the Asian markets often end up defining the US opening range and overall trend. With globalization, geography doesn’t matter anymore; a lot of the traders at work while the US sleeps are Americans and others trading the Globex electronic markets around the clock. And the machines, of course, never sleep.
Does this mean we simply buy stock indices in the morning and spend the day shopping for stuff we’ll buy with our guaranteed profits? No. Beware of any “set it and forget it” trade recommendations. Even those with deep pockets who can take large drawdowns are missing great countertrend opportunities and taking needless risks. This is especially easy to do when you’re trading other people’s money.
Instead, just do this all day: blend with the trend. Don’t overthink things, don’t ask why the market is doing whatever it’s doing. Leave that to the people with nice hair and teeth on TV.
Ours is not to reason why. Ours is but to sell and buy.
Above all, don’t hold on to a losing position because you’ve foolishly decided what the market should do and insist on holding on until it proves you right. To hell with being right. We’re in this to be profitable. All traders face this choice:
- To indulge their egos and feel like brilliant market prognosticators, or…
- To make money by admitting the trend is not what they thought it would be and blending with the new trend or getting out until the new trend is clear.
Great traders make the right choice and get paid in money. Immature traders make the costly choice and get paid in emotional drama. As market wizard Ed Seykota often says, “Everyone gets what they want from the markets.”
Short the corrections if you’re feeling scalpy, but don’t try to pick tops and bottoms. Trade what I call the “fat middle,” that middle portion of a good trend when the volume has come in, the momentum is pushing it along, and, even if the stochastics say it’s overbought or oversold, the price is still moving with the trend. Use stops at appropriate price levels. You can’t lose money taking profits. And you can always get back in with a new plan of entry and exit. Don’t chase the herd.
Blend with the trend. Always. Keep an eye out for the 10-Handle Rule and use stops. If you can avoid “irrational exuberance” this week, you can profit from the wisdom in this simple rhyme: the trend is your friend till the end, when it bends.
That’s why you must blend with the trend.
- It’s 8 a.m. and the ESU is up 2 handles at 1691.50; crude is up 61 cents at 108.66; and the euro is up 38 pips at 1.3181.
- In Asia, 9 out of 11 markets closed higher (Shanghai Comp +0.61%, Hang Seng +0.25%, Nikkei +0.47%).
- In Europe, 8 out of 12 markets are trading down (DAX -0.07%, FTSE -0.29%).
- Today’s headline: “World Stocks Approach New Highs on Abe’s Win”
- Total volume: 1.15mil ESU and 5.3k SPU
- Economic calendar: 8:30 AM Chicago Fed National Activity Index; 10 AM Existing Home Sales; 11am T-Bill Auctions
- Fair value: S&P 168.89 (+3.86); NASDAQ 3038.18 (+7.82)
