China Looms: Who Wants to Be Long Stocks Going Into a 3-Day Weekend?
U.S. stocks are staging a nice recovery Friday morning. But don’t be the least bit surprised if equities fade hard into the close this afternoon.
Here in the U.S., we’re at the eve of a three-day weekend, and especially in market-turbulent times like these, there’s going to be many a trader not wanting to be terribly exposed to the long side as Friday draws to a close. After all, there will be few opportunities until Tuesday to react to developments between now and then.
One development that looms large: China is reopening its stock exchanges Monday after this week’s New Year’s holiday. With Japan’s Nikkei 225 slumping 11% this week and other markets globally logging big declines, there’s plenty of selling that Chinese traders need to catch up on.
And with Chinese regulators last month setting aside brand-new circuit breakers which halted trading for a day when the market dropped 7%, there’s a possibility that they catch up in a single day.
If it does, it’s certain to garner many a headline–and quite possibly throw a further wet blanket on the already-downbeat market sentiment. Yet even a 10% drop on Monday wouldn’t be as stark as it would seem on the surface because the figure would actually entail several sessions worth of declines, not one.
Still, Wall Streeters won’t want to be exposed to a half-week’s worth of limited reactive ability by leaning overly long. Asian markets will have two full sessions under their belts and Europe will have nearly that much when the opening bell rings Tuesday. There’s plenty of market moves which can occur in that time.
Also, recall what happened four Fridays ago ahead of the last three-day holiday weekend in the U.S.: The Dow Jones Industrial Average fell 391 points, or 2.4%.