Recurring Phenomena

Many market participants believe simple phenomena in the stock market are purely random events and cannot recur consistently. Indeed, there is probably no stock market “rule” that will remain valid forever.

However, there continue to be certain statistical phenomena in the stock market – even quite simple ones – that have shown a tendency to persist for very long time periods.

 

This chart illustrates a “rule that changed” – for eight decades (actually longer, but on this chart we can see the final eight decades during which the rule applied) the dividend yield on the S&P 500 Index would never fall much below 3%. Whenever that level was reached, everybody knew a correction or a bear market was imminent. This changed profoundly in the mid 1990s. The culprit: massive monetary inflation. [PT] – click to enlarge.

 

In today’s report I examine such a phenomenon: namely, the performance of the S&P 500 Index on individual days of the week.

 

Tuesday is a Particularly Strong Trading Day, Friday a Weak One

The chart below shows the annualized performance of the S&P 500 Index since the turn of the century in black, as well as the cumulative annualized return generated on individual days of the week in blue.

I have measured the price changes from close to close; thus the performance of e.g. Tuesday represents the difference between the closing level on Monday and the closing level on Tuesday.

 

S&P 500 Index, performance by individual days of the week, 2000 to 2017 – annualized.  Friday is on average a down day.

 

As you can see, two days are standing out in terms of positive performance: Thursday, and especially Tuesday. The cumulative return of the stock market on Tuesdays alone was actually better than the cumulative return  achieved on all five trading days combined!

By contrast, Friday was on average quite weak. On Mondays and Wednesdays the market by and large tended to move sideways on average.

The difference between these returns, which was measured over no less than 4,436 trading days, is statistically quite significant. This suggests we are unlikely to merely look at a random phenomenon [ed. note: even though it is not possible to actually explain it off the cuff, the statistical significance indicates that an explanation must exist. PT].

What do these data look like in specific market environments though, i.e., during bull and bear market periods?

 

The Days of the Week Under the Microscope

The next chart shows the performance of the S&P 500 Index since the turn of the century in black, as well as the cumulative return achieved on individual days of the week in other colors – all indexed to 100.

 

S&P 500 Index, cumulative returns by day of the week, 2000 – 2017, indexed.  Even in 2008 investing exclusively on Tuesdays ended up generating a gain! – click to enlarge.

 

Take a close look at the performances during the bear market after the year 2000 peak and in the course of the 2008 financial crisis. Even in these otherwise difficult times for the market, Tuesdays (red) and Thursdays (blue) delivered pretty decent results.

In 2008, the cumulative return generated on Tuesdays was actually significantly positive, in the face of an extremely bearish market trend!

In short, these two trading days are indeed rather extraordinary.

 

Combinations Improve Results

By investing only on Tuesdays, one would have been able to outperform the market over the entire period examined above. However, in rally periods, such as e.g. the rally beginning in 2009, the cumulative return achieved on Tuesdays lagged behind that of the trading week as a whole.

That should actually be expected, as strong gains require longer investment periods, and being invested just 20 percent of the time is simply unlikely to be enough.

This problem can be addressed by implementing combinations. As already illustrated by the first chart, overall, the S&P 500 Index has gained 2.95% annualized since 2000, while the cumulative gain of all trading sessions on Tuesdays was 3.19%.

Combinations can make a very big difference though. Investing on Tuesdays and Thursdays combined would have generated an annual return of 5.52%. If one had additionally sold the market short on Fridays, the annualized gain would have improved to 8.07% –  definitely an excellent result!

 

Combining Independent Factors Will Lead to More Stable and Reliable Returns

Alas, there is a drawback to this combination strategy as well: the returns generated on individual days of the week are interdependent. For instance, it may well happen that at some point in the future, in an otherwise slightly uptrending stock market, Tuesdays and Thursdays no longer deliver a strong return over the entire investment period, but turn out to be weak instead.

If that were to happen, it would be highly unlikely that the returns generated on Fridays would remain as weak as they have been to date. In short, all three partial components of the strategy would then exert an unfavorable effect on the overall investment result.

From a statistical perspective, it is therefore as a rule better to combine independent factors, such as those that can be found with the help of the Seasonax app (available on Bloomberg and/or Thomson-Reuters). The probability that what was valid in the past will continue to be valid in the future is higher that way.

PS: For now, you can probably relax on Mondays and enjoy the action on Tuesdays!

 

Charts by StockCharts, Seasonax

 

Image captions by PT where indicated

 

Dimitri Speck specializes in pattern recognition and trading systems development. He is the founder of Seasonax, the company which created the Seasonax app for the Bloomberg and Thomson-Reuters systems. He also publishes the website www.SeasonalCharts.com, which features selected seasonal charts for interested investors free of charge. In his book The Gold Cartel (published by Palgrave Macmillan), Dimitri provides a unique perspective on the history of gold price manipulation, government intervention in markets and the vast credit excesses of recent decades. His ground-breaking work on intraday patterns in gold prices was inter alia used by financial supervisors to gather evidence on the manipulation of the now defunct gold and silver fix method in London. His Stay-C commodities trading strategy won several awards in Europe; it was the best-performing quantitative commodities fund ever listed on a German exchange. For detailed information on the Seasonax app click here (n.b., subscriptions through Acting Man qualify for a special discount).

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

One Response to “S&P 500 Index: A Single Day Beats the Entire Week!”

  • Rick T:

    I recall a post-mortem on the Jan 1973 to Dec 1974 bear market, one of the worst ever (unweighted indices like the Value Line peaked in the spring of 1972, and by the end of 1974 were down something like 80+% – don’t recall exactly.)

    By far the greatest percent of the total decline took place on Mondays. It seemed that every Monday the market would be hit hard, and try to bounce pathetically the rest of the week, causing the weekend to be unpleasant for most investors. Monday AM they called their brokers to sell more stocks and another bad Monday occurred.

    Once stocks started going up in 1975 that changed. I think this Tuesday/Friday split you have identified may not survive the bull market. These things are the kind that work well for a while for reasons nobody can figure out, then mysteriously stop.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • How to Get Ahead in Today’s Economy
      “Literally On Fire” This week brought forward more evidence that we are living in a fabricated world. The popular story-line presents a world of pure awesomeness. The common experience, however,  falls grossly short.   There are many degrees of awesomeness, up to total awesomeness – which is where we are these days, in the age of total awesomeness, just a short skip away from the Nirvana era. What is Nirvana, you may wonder? We only know for sure that Nirvana is what...
  • Gold and Gold Stocks – Conundrum Alert
      Moribund Meandering Earlier this week, the USD gold price was pushed rather unceremoniously off its perch above the $1300 level, where it had been comfortably ensconced all year after its usual seasonal rally around the turn of the year. For a while it seemed as though the $1,300 level may actually hold, but persistent US dollar strength nixed that idea. Previously many observers (too many?) expected gold to finally break out from its lengthy consolidation pattern, but evidently the...
  • US Money Supply Growth Jumps in March , Bank Credit Growth Stalls
      A Movie We Have Seen Before – Repatriation Effect? There was a sizable increase in the year-on-year growth rate of the true US money supply TMS-2 between February and March. Note that you would not notice this when looking at the official broad monetary aggregate M2, because the component of TMS-2 responsible for the jump is not included in M2. Let us begin by looking at a chart of the TMS-2 growth rate and its 12-month moving average.   The y/y growth rate of TMS-2...
  • Fear and Longing - Precious Metals Supply and Demand
      Waiting for Permanent Backwardation  The price of gold dropped 9 bucks, while that of silver rose 3 cents. Readers often ask us if permanent backwardation (when gold withdraws its bid on the dollar) is still coming. We say it is certain (unless we can avert it by offering interest on gold at large scale). They ask is it imminent, and we think this is with a mixture of fear and longing for a higher gold price.   Lettuce hope this treasure is not cursed... but it probably is....
  • Scorn and Reverence - Precious Metals Supply and Demand
      Shill Alarm One well-known commentator this week opined about the US health care industry:   “...the system is designed the churn and burn... to push people through the clinics as quickly as possible. The standard of care now is to prescribe some medication (usually antibiotics) and send people on their way without taking the time to conduct a comprehensive examination.”   From the annals of modern health care... [PT]   Nope. That is not the standard...
  • Gold and Gold Stocks – The Gloom Patrol
      Fun with Positioning and Sentiment Last week we discussed the gold sector “conundrum” – the odd fact that there is apparently quite strong demand for gold despite a macroeconomic environment that would normally be considered quite bearish for the metal. Gold recently seems to have lost its last remaining inter-market “ally” if you will, as the dollar has begun to enter an uptrend as well. Positioning data in precious metals futures are nevertheless rather remarkable, given the...
  • Global Turn-of-the-Month Effect – An Update
      In Other Global Markets the “Turn-of-the-Month” Effect Generates Even Bigger Returns than in the US The “turn-of-the-month” effect is one of the most fascinating stock market phenomena. It describes the fact that price gains primarily tend to occur around the turn of the month. By contrast, the rest of the time around the middle of the month is typically far less profitable for investors.   Good vs. bad seasonal timing...   [PT]   The effect has been studied...
  • Tales from “The Master of Disaster”
      Tightening Credit Markets Daylight extends a little further into the evening with each passing day.  Moods ease.  Contentment rises.  These are some of the many delights the northern hemisphere has to offer this time of year. As summer approaches, and dispositions loosen, something less amiable is happening.  Credit markets are tightening.  The yield on the 10-Year Treasury note has exceeded 3.12 percent.   A change in pace: yields are actually going somewhere. There is...
  • Is Political Decentralization the Only Hope for Western Civilization?
      Voting with their Feet A couple of recent articles have once more made the case, at least implicitly, for political decentralization as the only viable path which will begin to solve the seemingly insurmountable political, economic, and social crises which the Western world now faces.   Fracture lines – tax and regulatory competition allows people to “vote with their feet” - and they certainly do. [PT]   In the last few months, over 3,000 millionaires have...
  • Getting Out of Dodge
      Rare Commodity Modern economists are prone to shouting fire in a crowded theater.  The world is full of seeming incongruences. Economists puzzle over things like population growth and arable acres of farmland. They project out a linear scenario of increasing divergence, and see a catastrophe in the making.   Professional scaremonger Thomas Robert Malthus, one in a long line of scarcity prophets who failed to recognize the capacity of human ingenuity and free markets to...
  • “Sell In May And Go Away” - A Reminder: In 9 Out Of 11 Countries It Makes Sense To Do So
      A Truism that is Demonstrably True Most people are probably aware of the adage “sell in May and go away”. This popular seasonal Wall Street truism implies that the market's performance is far worse in the six summer months than in the six winter months. Numerous studies have been undertaken in this context particularly with respect to US stock markets, and they  confirm that the stock market on average exhibits relative weakness in the summer.   Look at the part we...
  • Why the Fundamental Gold Price Rose - Precious Metals Supply and Demand
      Gold Lending and Arbitrage There was no rise in the purchasing power of gold this week. The price of gold fell $22, and that of silver $0.19. One question that comes up is why is the fundamental price so far above the market price? Starting in January, the fundamental price began to move up sharply, and the move sustained through the end of April.   1-month LIBOR (London Interbank Offered Rate – the rate at which banks lend euro-dollars to each other). LIBOR and GOFO...

Support Acting Man

Item Guides

Top10BestPro
j9TJzzN

The Review Insider

Dog Blow

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com

Diary of a Rogue Economist