An Inside Look at the Thanksgiving Market Decline

Nov 26, 2009: 9:04 PM CST

If you didn’t check the US futures on Thanksgiving (what good trader wouldn’t do that?!), then you missed some sharp downside action, spurred by global shockwaves from Dubai’s proposal to postpone debt payments.  Global Markets were open while the US Market was closed, and many of these overseas markets fell sharply on the US’s Thanksgiving holiday.

Let’s take a look at the S&P E-mini futures contract on both the daily and 15-minute frame so we can see the fall-out that will face traders as the market opens Friday morning.

If this is any clue to Friday, the SPY and other major US Equity Indexes will open down around 1.5% to 2.%, testing near their rising 20 day EMA as shown on the @ES December Futures chart of the S&P 500 E-mini contract.

We see a similar negative volume divergence in the futures contract that we see occurring in both the SPY and the S&P 500 Index – that’s a bearish non-confirmation.

Let’s step inside this one-bar (one-day) decline that many traders are unaware has happened.

15-min ‘overnight’ chart:

I’ve drawn highlights to approximate the “day” session (what SPY and “Market Hours” traders would see without the overnight futures session added.

We see that the decline began just prior to midnight CST Thursday as the Thanksgiving holiday officially began… and the sell-off was relentless, with the exception of a mini-bear flag style rally around 5:00am CST.

It’s not a hideous “end of the world” sell-off by any means – we’re just back to the level seen on November 20th.  Still, a 27 point overnight drop in the @ES is no fun for bulls, given that each point in the futures contract translates into a $50 loss (or $50 profit for those short).  That’s almost a $1,500 loss overnight per contract.

For a bit of clarity – removing the overnight session – let’s look at the “NYSE Hours” 15-min chart:

Price has yet to overcome the 1,110 level in the futures contract, and now we’re trading back at the lower level of the trading range established at the recent swing highs.

We also see the negative volume divergence clearer on this type of chart – though keep in mind pre-holiday trading sessions are characterized by lower volume in general.

Here’s a great summary by Mish in his recent post, “Dubai Defaults – Deflation in Action – A Watched Pot (Never Boils) Theory“.

Read more about this development in Bloomberg and CNBC (or your favorite Financial Website) and be prepared for Friday’s half-day trading session.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

6 Comments

6 Responses to “An Inside Look at the Thanksgiving Market Decline”

  1. Gold's Thanksgiving Crash and Friday Recovery | Afraid to Trade.com Blog Says:

    […] Recovery Nov 27, 2009: 11:14 AM CST // Along with the quick global market decline that occurred while the US was celebrating the Thanksgiving holiday, gold fell $60 in a span of about four hours, highlighting the potential risk of an overbought, […]

  2. dacian Says:

    Corey, is that “NYSE” – 15 min chart an island reversal???
    thanks

  3. dacian Says:

    Corey, is that “NYSE” – 15 min chart an island reversal???
    thanks

  4. Gold’s Thanksgiving Crash and Friday Recovery | Penny Stock Trading System Blog Says:

    […] with the quick global market decline that occurred while the US was celebrating the Thanksgiving holiday, gold fell $60 into the night session, highlighting the potential risk of an overbought, […]

  5. SPY Intraday Doji into Fibonacci with Divergence Example | Afraid to Trade.com Blog Says:

    […] expected from Thursday’s post, the market gapped down on Friday morning and then suddenly began to recover its losses over the […]

  6. SPY Intraday Doji into Fibonacci with Divergence Example | Penny Stock Trading System Blog Says:

    […] expected from Thursday’s post, the market gapped down on Friday morning and then suddenly began to recover its losses over the […]