How to Beat the Low-Volume Holiday Volatility

by | Dec 21, 2021 | Crypto

Two days in and the shortened holiday week volatility has already lived up to its reputation… 

We saw the indexes gap down from 1.2% to 1.6% to open the week after a series of negative weekend headlines spurred fresh volatility. 

Everything from European shutdowns to sporting events postponements to politicians on Capitol Hill are getting pummeled by the latest outbreak. The new variant is spooking Wall Street, driving a quick sell-off as traders started to lose hope of a Santa Claus rally to end the year.

Although we saw some weakness to start Tuesday’s session, the indexes all rose into the green, including the Nasdaq which has had a rough few weeks after hitting record highs in mid-November.

The S&P 500 is implying around a 65-point move higher or lower between now and Thursday, with markets closed Friday for Christmas Eve.

That means the markets still could be in for more volatility before the long weekend hits, so here’s what I’m keeping tabs on heading into Christmas…

Omicron Fears and Political Catalysts Add to Holiday Week Volatility 

On Saturday, the Netherlands announced it’s imposing a strict lockdown to help prevent the outbreak of the omicron variant Other countries in the region are also considering their own versions of restrictions from travel bans to stricter requirements in public spaces. 

Back in Washington, Sens. Elizabeth Warren and Corey Booker both tested positive for COVID-19 after being double-vaccinated and boosted. In response, President Joe Biden announced a press conference Tuesday to outline the administration’s plan to combat the omicron outbreak, urging the unvaccinated to change their minds.

If more countries see the need to lock down and restrict business, we’re likely to see more holiday week volatility and flip right back into sell mode given the expected lighter volume.

Adding to market weakness is another breakdown in the Democrats’ narrow majority in the Senate. West Virginia Sen. Joe Manchin announced he will vote “no” on the current incarnation of the “Build Back Better” bill — estimated to contain about $2 trillion in spending. 

Manchin’s holdout leaves the bill twisting in the wind for the time being, adding some downside risk to industrial and materials stocks like U.S. Steel Corp. (NYSE: X) and Martin Marietta Materials Inc. (NYSE: MLM).

Looking ahead, we have a few important data dumps that could be fuel for low-volume holiday week volatility… Wednesday morning, we’ll see the latest gross domestic product figures. And then we have jobless claims and new home sales on Thursday. 

With the $2 trillion plan on the rocks, Goldman Sachs cut its GDP forecast, so some better-than-expected reports could soften the impact from the weekend’s triple whammy of bad news for stocks.

When volatility ramps up during short holiday weeks like this, I usually steer clear of stocks that are big portions of the indexes. That means names like NVIDIA Corp. (Nasdaq: NVDA), Apple Inc. (Nasdaq: AAPL) and other FAANG stocks.

Not only do those names carry expensive options, they also tend to trade one-to-one with the market. That’s why I prefer going after names seeing  unique order flow, which I highlight in The Daily Blitz and our weekend watchlist.

We saw a nice squeeze in travel names on Monday, sparked by strong forward guidance from the Carnival Corp. (NYSE: CCL) earnings announcement. I’ll be looking to buy dips for a potential rebound in that sector.

Check out the quick video and let’s talk about the holiday week volatility. If you’re trading in the middle of it, be sure to use proper position sizing, stay nimble and trade small!

Don’t forget you can follow me @LanceIppolito on Twitter, Instagram and our YouTube channel for more trading insights and tips. And as always, you can find me right here talking stocks and options trading — and printing money — on WealthPress.com!

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WRITTEN BY<br>Lance Ippolito

WRITTEN BY
Lance Ippolito

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