Another Day, Another Trading Quirk

Turnaround Tuesday describes a well-known market bias. Longtime traders note that trends starting on Friday and holding firm through Monday often reverse in the first hour of Tuesday's market. New trends or countertrends that begin at this time can trigger substantial price movement over the next two days. Volume often spikes on Tuesday, because many large players execute their first strategies of the week during this day. Note how institutions act during this important session, because it often predicts longer-term direction.

There are no guarantees an up market will replace a down one on Tuesday morning, or vice versa. The second trading day of the week often exhibits a dull evolution from a trending market into a rangebound one. I examined the characteristics of this trend-range oscillation in an October column.

Unfortunately, rangebound action can persist through the end of the week when underlying forces are in conflict. Last week's dull trading environment gave us a perfect example of these time dynamics at work. A basic rule for traders is to look for Tuesday's market to set the tone for many days to come.

Wednesday and Thursday usually reinforce themes initiated earlier in the week. For example, strong trends should continue through this time unless external shocks hit the market. But price action may hesitate on Thursday afternoon as awareness of the upcoming weekend enters the market psyche. This wall of worry grows stronger when the crowd fears market-moving news on Friday morning.

Freaky Friday

The government issues economic reports through a regular publication cycle, and the major ones can affect markets at any time. But the monthly unemployment report wields the greatest hammer, and it always appears on the first Friday of the month. The credit and futures markets often respond violently to these important numbers. This ensures a broad crowd reaction when the equities markets open at 9:30 a.m. ET.

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Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. At the time of publication, Farley did not have any positions in any of the stocks mentioned in this article, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback and invites you to send it to [e-mail]. Also, click here to sign up for Farley's premium subscription product The Daily Swing Trade brought to you exclusively by TheStreet.com.

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