Reflections on Black Friday: Market Psychology

Nov 27th, 2009 | By | Category: General Comments, Mike Bellafiore's (Bella's) Blogs
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At 5:15 AM I awoke Eastern Standard Albany Time.  I was in Albany, New York about to take a borrowed car to the Amtrak train station to the subway to my office trek.  Door to door it took me just under four hours.  I was the only one awake on Amtrak from Albany to Penn Station as I was preparing for today’s open, trying to communicate with my partner Steve, rip through charts, and find patterns from overseas trading that might give us an edge before the open.

The night before we had called all of our traders in for today’s trading session because of the Dubai news.  We reached some but not all.  We spread word to the StockTwits community that this Black Friday was not a session to miss if possible.  SPY was opening down huge.  We might bounce.  We might tank.  Whatever would happen would offer opportunity.  As intraday traders opportunity is what sustains us (though for one of our traders it’s Burger King and candy).  I was hard pressed to remember a day that offered more potential intraday trading opportunity than this Black Friday as I reflected on this trading year Thanksgiving night.

As a trader you never know when you are going to walk into a market raining money.  Today could have been that day.  I was not going to miss it.  So I woke up early, sacrificed time with my family (which is of great importance to me), and started my travails.

I patched into our AM Meeting which we broadcast to the StockTwits community via a crappy travel lap top (all in we are talking $300) from a spotty wireless region.  But I saw and heard Steve from my reclined seat on Amtrak offering me a game plan for today’s open.  That was pretty cool.  What a super job by Steve and all who helped him prepare for his show running down all the key levels to watch before the open.  But then he said something that mattered most of all.  And it is the central idea that market players ought to take away from our trading today.  Steve introduced the idea of market psychology.

Yes the news before the open was not good.  Asia had digested this Dubai news the past two days and showed signs of food poisoning. The Asian markets got hammered the past two trading sessions.  And our markets were poised to open supremely weak.  But Steve reminded all of us that what mattered most was market psychology.  The market has shrugged off every piece of negative news since SPY 70 (boy does that seem like 3 years ago).  The pattern that has rewarded traders of all trading periods the past year has been to buy the dips.  Steve reminded us that if SPY held above 109.10 then this would be a signal that this was just another piece of news the market would likely shrug off.  It did.

We did not see the panic in the financials that some might have expected before the open.  The psychology of the market is still to buy all dips.   What will change this?  I am not sure.  Maybe there were too many traders unwilling to hop on a train like me and make into work to change this psychology.  Maybe come Monday you will see an influx of sell orders.  Maybe new news will develop that scares investors before the end of 2009.

The market is what it is.  And right now it shrugs off all bad news.  Back in the day, during the Internet Boom, an internet company cold say virtually anything negative about their future prospects, the stocks would gap down, and then bounce.  The market psychology was to buy all gap downs.  There was a sea of money to be lost ignoring these market patterns in the late 90’s.

We did see some selling in GS and FAS into the close in the last ten minutes.  That is something for the bears to hang their hats on.  We will know more on Monday.  We can learn more from watching Asia and Europe trade Sunday night.

As for me, I will watching some college hoops (does it get any better than UConn/Duke?), eating Patsy’s pizza, enjoying a glass a red wine (maybe two) and relaxing.  By the way, did I miss any good Black Friday sales?

Enjoy your weekend.  And thanks for reading!

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  1. Trading opportunity, Burger King, and Candy is all I need to succeed!

  2. Trading opportunity, Burger King, and Candy is all I need to succeed!