Black Friday has become the biggest shopping day of the year as both in-store and online retailers slash prices to get the gift-buying season rolling. Black Friday happens the day after Thanksgiving which is the fourth Thursday in November which means for 2015 it falls on Friday 27 November.
There is absolutely no denying that Black Friday affects the trading markets, so it is important to approach this period with a reasonable amount of caution because prices can go one way or the other.
Black Friday typically signals a period of very strong retail performance, helping to provide a momentary boost to stock prices and create some favourable conditions for you to probably open some long positions.
On the other hand, if retail sales are weaker than expected then this could signify a weakness in consumer confidence.
This may create panic as the economy as a whole is weaker than anticipated and retail traders begin closing themselves out of dwindling trades.
As you might imagine, both scenarios can have a residual effect on trading conditions for the rest of the year.
A strong Black Friday retail performance could lead into a bullish December period, with a great subsequent Santa Claus rally. Of course, this will set us up for a great start to 2016, at least as far as retail stocks are concerned.
Looking at historical sales figures, things do look promising for this year’s Black Friday. With one exception, every Black Friday since 2003 has recorded higher retail sales volume than any other day of the year.
Trading On Black Friday Factors
Mark Hulbert, financial newsletter writer, conducted an interesting analysis of 114 years of market activity. He attempted to find a correlation between Black Friday market performance and the balance of the year as a whole.
Interestingly enough, he found absolutely no correlation, and recent years have actually shown the opposite to be true. Stocks that have been up on the Friday and Monday after Thanksgiving have often been down until the end of the year.
So while retail performance shortly after Thanksgiving may provide some general outlook of market conditions, it is certainly not an accurate means of determining the future performance of specific stocks.
Of course, it doesn’t matter how you interpret Black Friday performance, you should ensure you don’t look at this data in isolation.
You may be able to use retail performance as confirmation in combination with other relevant factors, always as part of a proven strategy.
Also remember that an increasing number of people are placing online orders on what has become known as “Cyber Monday,” often as a way of avoiding the massive crowds expected at stores on Black Friday.
This, plus poor weather conditions, could cause more people to stay at home, potentially affecting retail sales and stock performance during this period.