Holiday Week Trading: What to Watch After MLK Day
Markets closed Monday for Martin Luther King Jr. Day. Netflix earnings, Fed commentary, and historical patterns point to a volatile week.
Markets are closed Monday for Martin Luther King Jr. Day, giving traders a three-day weekend to digest a busy week of earnings and Fed commentary.
When trading resumes Tuesday at 9:30 a.m. Eastern, Netflix's after-hours report will set the tone for the tech sector. The shortened four-day week historically brings elevated volatility—something options traders should factor into their positioning.
The Historical Pattern
MLK Day weeks have been rough for stocks since the holiday became a market closure in 1998.
The S&P 500 has averaged a 0.49% decline during MLK weeks over that span, with only 43% of those weeks ending positive. During all other weeks, the index averages a 0.18% gain with 57% positive.
There's no compelling fundamental reason for this pattern. It's likely statistical noise given the relatively small sample size. But traders should know that historical seasonality isn't in their favor this week.
Volume patterns also shift. Friday before the holiday typically runs 15-20% below average as institutional desks thin out. Tuesday's open often features a volume surge of 25-30% above normal as two days of news gets absorbed in a single session.
The Netflix Catalyst
Netflix reports fourth-quarter results Tuesday after the close, creating the first major earnings event of the week.
Wall Street expects $4.20 in earnings per share on $11.97 billion in revenue. More important than the backward-looking numbers will be management's guidance for 2026—particularly on subscriber growth and operating margins.
The stock has rallied 18% over three months, suggesting expectations are elevated. Options markets imply a 7% post-earnings move in either direction. A beat-and-raise could push shares above $1,000 for the first time. A guidance miss would likely pressure the broader tech sector given Netflix's status as a consumer spending bellwether.
Fed Watch Continues
The Federal Reserve enters its blackout period ahead of the January 27-28 FOMC meeting, limiting official commentary this week. But last Friday's developments on Fed chair succession continue to influence rate expectations.
President Trump's signal that he wants Kevin Hassett to remain at the White House has boosted odds for former Fed Governor Kevin Warsh to replace Jerome Powell in May. Warsh has historically favored tighter policy than other candidates, which explains why Treasury yields rose Friday despite no change in Fed guidance.
The 10-year yield settled at 4.2%, up from 4.17% Thursday. If Warsh's appointment becomes official—potentially at Davos later this week—bond markets could price in even fewer rate cuts for 2026.
Earnings on Deck
Beyond Netflix, the earnings calendar features several notable reports:
Tuesday: Netflix (NFLX), 3M (MMM), DR Horton (DHI)
Wednesday: Johnson & Johnson (JNJ), Procter & Gamble (PG), Abbott Labs (ABT), GE Aerospace (GE)
Thursday: Union Pacific (UNP), American Airlines (AAL), Alaska Air (ALK), Freeport-McMoRan (FCX)
Friday: American Express (AXP), Verizon (VZ), NextEra Energy (NEE)
The mix spans consumer, healthcare, transportation, and financials—providing a broader read on economic conditions than last week's bank-heavy calendar.
Technical Setup
The S&P 500 closed Friday at 6,940, essentially flat on the week after posting small losses. The index sits 0.6% below its January 6 all-time high of 6,982.
Support levels to watch: 6,900 (psychological), 6,850 (10-day moving average), 6,780 (January low). Resistance sits at the recent high near 6,980.
The VIX settled at 16.15 Friday, up modestly from Thursday but well below stress levels. Readings below 15 would suggest complacency; spikes above 20 would signal concern.
Small caps continue to outperform, with the Russell 2000 holding above its breakout level near $245 on IWM. That rotation trade has been the story of early 2026 and bears watching this week.
Options Considerations
Holiday weeks create unique challenges for options traders. Time decay continues even when markets are closed—three calendar days pass between Friday's close and Tuesday's open, eating into premium for short-dated positions.
If you're holding weekly options through the weekend, you're effectively paying for three days of theta with zero opportunity to adjust. That's fine if you want the exposure, but it's expensive insurance if you're uncertain about direction.
The SPDR S&P 500 ETF (SPY) January 24 at-the-money straddle priced at roughly $8.50 Friday, implying a 1.2% expected move through expiration. That's slightly elevated versus typical weekly readings, reflecting Netflix risk and the holiday-compressed timeframe.
The Week Ahead
Tuesday will set the tone. A clean Netflix beat could extend the new-year rally and push the S&P 500 toward new highs. A miss—particularly on guidance—would test support levels and potentially trigger a rotation back into defensives.
Beyond the earnings, watch for any Davos headlines. Trump and Treasury Secretary Bessent are scheduled to speak, and there's speculation that a Fed chair announcement could come during the conference. Markets would react sharply to Warsh confirmation given the rate implications.
The shortened week means four days of news compressed into four sessions. Expect gaps, expect volume swings, and expect the VIX to move. It's a good week to size positions appropriately and avoid overcommitting before key catalysts resolve.