"Market Has Life" - Weekend Effect

Five trading days, ended on Friday begins again on Monday. The remaining two days of non-trading days contributes a significant impact on the following week opening. Most of them are affected by news during weekend or emotional recovery during these two days.

Since the topics here are about the psychological of stock market, let's talk about emotional recovery (emotional adjustment).

Some companies know such effect does give significant impact to the traders/investors. Therefore they like to release bad announcement after the Friday market closing hoping for the next two days will allows the traders/investors are emotionally adjusted.

Human has short memory. You may forgot what you have traded few months back (unless it is a significant trade). You may forgot some bad things about some companies after seeing their stock price surges. In the two days in the weekend, the traders/investors will go through thinking process that most probably diminishes his/her nervous bearish thought. So, the next following week opening, traders/investors might just hold and see how is the situation before reacts.

The matter will be more serious if the opening of the market is on the following days after the bad announcement is released. No time to react, the selling will be larger than the situation above.

Next, what weekend effects to the market in term of TA explanation?

Long term investors look at the weekly chart is mainly for the reason of stabilized price . During the weekdays trading (intra-week), the price is much more volatile compared to inter-week. The inter-week movement has stronger evidence for the trend. Therefore in most of the cases, gapping up or down in the weekly chart has a story to tell. Most of the TA practitioners think that a weekly gap is meant to be filled (eventually in the future) by the TA theory of "gap will be filled". Things are different than inter-day's gap, some of them may not filled if you checked the historical price chart. Try to change to weekly chart, most of them are filled.

Coming to weekend effect to index support. A Weekly Moving Average (MA) has stronger evidential effect as mentioned above. Short term players like to use 5 or 10 days MA to judge the current index trend. A 5 days daily MA is too volatile (market index is affected by tons of counters) therefore it is recommended to use 5 or 10 days weekly MA for market index analysis of trend.

Broken 5 Weekly MA in STI, the market tells you its trending downwards. Therefore 5 Weekly MA is one of the support for STI especially when the market is at uptrend (things can be different if market running sideline).

So, how does Weekend Effect affects you?