How to Beat the Summer Doldrums and a New Trade

Seven Tips on How to Stay a Sane Trader this Summer

Over the last few weeks, I’ve warned about the summer trading season’s tendency to wreak havoc with the markets due to inexperienced traders manning the ship for large firms and the general thinness of the market’s liquidity making life difficult. This is especially true on what I call “event days,” such as when there are important data releases.

Case in point was the Double Shot event day on 6/3/24, when an NYSE “glitch” took the price of Berkshire Hathaway’s Class A stock (BRK/A) to zero.  But the weird stuff didn’t stop there as we had conflicting purchasing managers’ reports confuse the program traders.

Specifically, the S&P Global PMI came in stronger than expected, while the ISM PMI data came in weaker than expected. The data conflict was good enough to create an unpleasant early to mid-day trading climate.

But fear not, just as one might expect, by the end of the trading day, both the Nasdaq 100 (NDX) and the S&P 500 (SPX) both bounced back into the positive before resuming their recent tendency to decline after the open.  In fact, both NDX and SPX remain in consolidation patterns above their 50-day moving averages.   Note, however, that the OBV line for NDX is weaker than that for SPX.  That suggests that technology investors are taking money out of positions.

Let’s see if the recent pattern of a late day buying trade materializes today.

Meanwhile, the bond market is rallying, in expectations of a slowing economy.  The U.S. Ten Year Note yield (TNX) moved back down well below that important 4.5% ceiling and is on the verge of a major long term shift as it tests the support of its 200-day moving average.

TNX was already moving lower in early trading when the job opening numbers (JOLTS) was released and showed a decline in the number of new job openings, possibly suggesting that this Friday’s non-farm payrolls may come in weaker than expected.

How to Beat the Doldrums

Unfortunately, for now, Wall Street has a bad case of the Doldrums, so it’s worth reviewing a few tactics which may be useful in dealing with what could be a long summer. Here are seven useful tips:

·        Expect downward drifts in prices during days with no data until this ongoing pattern changes;

·        Expect exaggerated responses to data releases, especially inflation numbers and interest rate influencers such as CPI, PPI, and non-farm payrolls.

·        Stick with what’s working and be prepared to be proven wrong despite your best analytic efforts and experience; and perhaps the most important suggestion;

·        Buy and Sell limits matter. Stay disciplined when both entering and exiting positions;

·        Take profits in stocks which call for it, and mind your sell stops on remaining positions;

·        Finally, keep showing up and adjust your methods only as needed.

At the end of the day, you’ve got to remember that summer trading on Wall Street is less liquid than other seasonal periods.  So, if you’re not tolerating the trading day’s shenanigans, maybe you should take a vacation.

But be careful. I just took one and most of the glow was gone by 11:00 A.M. on Monday - 6/3/24.

On the other hand, even during these trying periods a very appealing price chart appears. I found one, which belongs to a stock which is worth buying under certain conditions.