Friday's markets have other forces to reckon with as well. For example, options expire on the middle Friday of each month. The seven days preceding this session often trigger unusual volatility that peaks on expiration day. Market action throughout this time period can be highly unpredictable -- specifically, new highs often fail during this period, while an invisible floor appears under declining markets.
Traders should consider an early weekend before Friday's close rolls around. They also should decide how to position themselves for Monday morning. Many retail players face danger on Fridays because they're reacting to themes and imbalances from the prior four days. This induces them to act foolishly, especially when sitting on big profits or losses for the week. This is a time when losers jump into volatile stocks, trying to get even, while winners dump good trades before they reach their targets.
Many institutions focus on weekly price bars. Step into their shoes on Friday afternoon and predict how they'll react to end-of-week themes. Are they getting longer-term buying or selling signals on the weekly charts? What types of adjustments will they execute to protect larger positions? The answers to these questions can uncover large-scale sector rotation for the coming week.
Markets seek equilibrium as they head into Friday afternoon. This can trigger strong trends, but the last day of the week tends to end in a whimper rather than a bang. Many players wind down and disappear by the afternoon, especially in the summertime. This often triggers a choppy close on very light volume. But when serious issues carry into Friday afternoon, everyone will stay at their desks until the closing bell rings.
P.S. Will you be there when Cramer makes his next move?
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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 Alan.Farley@TheStreet.com. 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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