Stock market commentary, analysis, insight and opinion of the RightLine Editors is available every Tuesday/Thursday evening & Saturday
afternoon. The following is excerpted from the:
May 21, 2019 - The RightLine Report
Notes From The Editor
Success in the market is all about timing. Pick the right entry and exit points, and you've scored a profitable trade. While this point is obvious to anyone who's even dabbled in stocks, it's easy to overlook an underlying factor that can increase the odds of having good timing: the natural rhythm of the market.
Recently our discussion centered on some elements of trading in the morning. There are certain tendencies that tend to repeat themselves from day to day, giving some order and predictability to a seemingly chaotic market.
The same holds true of afternoon trading, which begins with the "lunchtime lull." As the major institutional traders in New York take lunch at 12:00-2:00 EST, the broader market will typically see a volume pullback and a decline in volatility.
For us retail traders, this offers an excellent chance to take stock of what's happened so far (no pun intended). Make note of which potential set-ups have fallen by the wayside, and which have emerged as the strongest candidates for the second half of trading.
Occasionally the lunchtime lull will extend into the end of the session, producing a non-eventful afternoon. This is often the case on Fridays before long weekends or holidays. Typically, however, volatility will return during the final two hours. Oftentimes the action will be even more intense than the morning session.
For traders holding active positions, one of the most important tasks is to make a note of which companies have upcoming earnings announcements.
Tech companies typically report after the bell, while others will report the following morning. Holding a company's stock over its quarterly report can be a risky proposition. Use the final two hours to find an optimal exit point, being sure to close out the entire position before the closing bell sounds.
End-of-day volatility can be especially high on the last day of the quarter. Mutual funds making adjustments to their portfolios often wait until the last minute to buy or sell. The third Friday of every month, when stock options expire, is another session that tends to produce increased afternoon volatility.
The last two hours can offer up plenty of promising set-ups. But just as trading during the day's first 15-30 minutes can be a tricky proposition, the session's homestretch should also be left to experienced traders. Until you've developed a more advanced set of skills, use the final half hour to manage any active position, to start game-planning for the next day, or to simply relax!
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