Who Says Black Friday Doesn't Exist Anymore?

Who Says Black Friday Doesn't Exist Anymore?

Posted on November 29, 2021
I hope everyone had a wonderful Thanksgiving holiday.  Remember when black Friday shopping was a big deal?  The news used to show long lines and mad dashes at 4am for people to get in on the brick-and-mortar deals.  It was an all-out panic that occurred the day after we celebrate Thanksgiving.  Last Friday, the stock market experienced what appeared to be a panic following its day off.  The S&P 500 fell -2.27% and the energy sector was off by more than -4%. 

So, what’s the big concern?  I am seeing on the news that the markets fell due to an investors panic caused by a new strand of COVID.  Sure, maybe that was the “reason” behind the drop, but the reason does not really matter.  This is all a part of market “noise”—normal day-to-day fluctuation given the environment the general markets are in.

Outlier Days
A trading day on the S&P 500 of +/-1.50% does qualify as an “outlier” day.  So, the market dropping by more than -2% isn’t a normal occurrence, but it is also not rare, particularly in this type of environment.  The S&P 500 is experiencing low volatility, which is evidence of low risk in the markets. Sometimes, volatility can become too low, and increase the chance of an outlier day occurring. 

A similar event last occurred on Monday, September 20th.  Here is an excerpt from our published market update:

We have been saying for the past few weeks that the markets could experience an “outlier day.”  As a reminder, Canterbury defines an “outlier day” as a day beyond 1.5%, up or down.  As of Friday’s close, the Canterbury Volatility Index read CVI 48 on the S&P 500.  This volatility level is extremely low.  In other words, the market had been lulled to sleep.  When this occurs, there is a higher probability of one of these outlier days occurring, just like the day experienced Monday, September 20th. 

For Friday’s outlier, volatility had gotten as low as CVI 49, which is in extreme low territory.  The market had yet again been lulled to sleep and got hit in the face with a cold glass of water which caused a spike in volatility and a panic among investors.  Where will the market go from here?  Most of the time the market will go back to experiencing normal fluctuations once it finds its footing.  This could mean that the markets experience a few more outlier days, in both directions, until it determines where it wants to go.

It should be noted that when we say “investors panicked” on Friday, it was really only a small sample of investors.  The day after a holiday, like Thanksgiving, is typically a low volume day, meaning there aren’t as many active participants in the markets.  In fact, the market closed 2 hours early on Friday.  One would expect a large trading day to be accompanied by large volume.  For a large cap index, like the S&P 500, this was not the case.  Friday was the 4th largest outlier day of 2021, and the 3rd largest down day, but its volume fell below its daily moving average. 

Out of the 14 outlier days in 2021, up and down, Friday’s outlier was the smallest volume day.  So, the 4th largest outlier day comes on the smallest volume.  So far in 2021, there has been a total of 228 trading days.  In terms of largest daily volume, Friday would have ranked the 213th largest (15 spots away from last).  

Even though the trading day closed 2 hours early, if you averaged out the day’s trading volume, assumed that the end of the day maintained that average, and added on 2 hours, the new adjusted volume would fall in about the middle the largest volume days in 2021, while still being one of the smaller volume outlier days.

Bottom Line
The bottom line is two quick points about Friday’s larger-than-average down day.  Point number 1 is that volatility was extremely low.  Extreme low volatility increases the probability of a volatility spike, just as we saw.  Point number 2 is that the day occurred on low trading volume.  Trading volume measures market participant conviction.  In other words, the low trading volume indicates a lack of conviction in the day’s move.

After experiencing an outlier day, the market may take some time to get its footing.  At the time of this writing, the S&P 500 is experiencing another outlier day, this time to the upside.  Volatility begets volatility.  It isn’t uncommon, and almost expected, to see outlier days come in clumps.  Remember that it takes time for market environments to transitions.  Canterbury is monitoring for any additional increases in market volatility, as well as individual portfolio positions to adjust to the current market environment.
Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom has more than 30 years of experience in the investment management industry and has a broad breadth of knowledge. He is known as an innovator, educator and has been revolutionary in the advancements of portfolio and risk management.

Canterbury Investment Management: Tom Hardin

More About Brandon Bischof

Brandon is directly responsible for managing the Canterbury Analytics Group (CAG). To date, Canterbury Analytics Group has played an important role in advancing portfolio management from a loose art form based on subjectivity and obsolete assumptions to an adaptive process with scientific rules and methods capable of providing evidence based results and statistically relevant value add results.

Every effort was used to provide accurate data and mathematical calculations to provide, what we believe to be, accurate results. Canterbury Investment Management, LLC, and its principal owners, make no guarantee of completeness or accuracy of data or calculations as well as conclusions of any statistical data or information contained in the simulation illustrated on this page. Past results or performance is in no way a guarantee of future results.