The Black Friday Phenomena, and How it Affects the Market

The Black Friday Phenomena, and How it Affects the Market

At first, this day was known as the day of the stock market collapse, and now it is a festival of all shopaholics in the world. And although the meaning of this term has changed to the exact opposite, today Black Friday is still the subject of close attention of all market players. Every season, analysts make predictions about the growth of sales on Black Friday, and each time investors freeze waiting to see if these predictions will come true. 

A bit of history

The term Black Friday was originally used to describe one unlucky day in 1869, when the stock market collapsed due to the manipulations of two American investors, Jay Gould and James Fisk, who provoked a real financial disaster after unsuccessful gold market manipulations.

The term came close to modern interpretation somewhere in the 1940s, also in the US. In an attempt to attract more people the next day after Thanksgiving, the stores provoked traffic jams and road accidents in the cities. Later, the term came to be used by producers of goods that were likely to become profitable on sales days, so companies sought to make big sales and put these positions ‘in the black’, or profitable, for the next year.

In the 1980s, retailers gradually began to use Black Friday as a marketing tool.  As a result, this day received the status of the most popular shopping day, and not only in the United States. Today, Black Friday has spread to dozens of countries, including Mexico, Russia and Pakistan. 

The Black Friday Phenomena, and How it Affects the Market

With the rise of the Internet, Black Friday was joined by another wonderful day — Cyber Monday, when online retailers also participate in sales. It is not surprising that this fruitful couple of days fell into the attention of analysts.

Black Friday and buying activity

Usually, Black Friday is associated with high retail activity, which ensures a rise in stock prices and can create favorable conditions for opening long positions. On the other hand, if consumer activity turns out to be weaker than expected, it may provoke negative consequences, including panic and the closing of entire retail segments.

Any of these or similar scenarios may have a residual effect on trading conditions until the end of the year. Good retail sales on Black Friday can trigger a bullish movement in December that will not be over when Santa Claus arrives.

The Black Friday Phenomena, and How it Affects the Market

Since 2003, with only one exception, every Black Friday has seen more retail sales than on any other day of the year. Of course, in 2020, given all the negative events, it is difficult to predict what volumes will be, but investors hope for the best.

Black Friday 2020 Forecasts

On November 23, the U.S. National Retail Federation (NRF) announced that it expected “holiday sales during November and December will increase from 3.6 percent to 5.2 percent compared to 2019, totaling $755.3 billion to $766.7 billion”. These figures do not include car dealers, gas stations, and restaurants. These are the three areas that have been severely affected by COVID-19. 

It should be noted that in 2019 the growth was 4% and averaged 3.5% over five years. Even though NRF is optimistic about holiday sales, especially against the background of an increase in the incidence of COVID-19, they expect a significant shift towards online sales and predict that “online sales and other sales outside the traditional trade” will increase by 20-30% compared to 2019.

Seasonal market opportunities

January effect

This pattern of market behavior is something similar to the Halloween effect that we have already covered. The Halloween effect implies that people sell stocks on which they have incurred losses and then buy them back in January. Because of it, many assets become more expensive at the beginning of the year, especially shares with small capitalization.

How do traders benefit from this phenomenon? The sequence of actions can look like this:

  • at the end of the year, start searching for inexpensive (or falling in price) positions and buying them;
  • track these positions for some time;
  • at the beginning of January, monitor the positions for unusual price spikes and, if the spikes occur, decide to sell them and make a profit.

Return of bearish trend

If Morgan Stanley analysts are right, we are in a bearish market right now. On November 19, the investment giant announced this openly.

What does it mean for ordinary traders? It means that potentially it is possible to extract additional profit in short positions.

Reduced market hours

Believe it or not, shortened market hours on holidays and weekends can be a good opportunity.

Experienced day traders are aware that there are surges in trading volumes during the first and last 30 minutes of a trading day. On a short trading day, the interval between these surges is also reduced, and market players are in a good mood as they wait for them.

Of course, no one can guarantee that it is during this period that you will close your most successful trades. But if you do not take a day off these days, why not take a closer look at the charts?

Fall of FAANG

Facebook, Amazon, Apple, Netflix, and Google. All these giants have suffered significant losses for the entire year. They have lost over 1 trillion dollars (!) in market capitalization since their recent highs.

The Black Friday Phenomena, and How it Affects the Market

Some analysts argue that companies that carry the weight of half the market have already been incredibly overvalued, and the pandemic and the subsequent market shake has only revealed this fact. Others say that now is the time to buy their positions. One thing does not exclude the other, though.

Right now, when the assets of “big guys” are in correction and it seems that the bear is about to trample the bull, new opportunities may arise, and not even necessarily for trading in short. Everything depends on your experience, foresight, and analytical capabilities.

Sober outlook

Though Thanksgiving retail figures can give some general idea of market conditions, these numbers alone are certainly not enough to make 100% accurate predictions.

No matter which Black Friday indicators you choose to analyze or how you analyze them, you need to make sure you don’t look at the data in isolation.

Sales figures can be used as additional information in conjunction with other relevant factors within a proven strategy. In any case, you should have as much market data as possible and be aware of possible risks. 

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