spx Memorial Day

Tuesday, May 27, 2003

Memorial Day Trading Strategy, S&P 500: Tonight I computed the average S&P 500 return for each of the 5 days prior to (-5) and after (5) the last trading day (0) prior to Memorial day from 1950 through 2002:

Year:	1950-2002 annualized;
-5	-46.83%
-4	-25.72%
-3	-24.01%
-2	-14.33%
-1	-30.24%
Memorial Day:	137.74%
1	63.55%
2	3.99%
3	10.40%
4	57.56%
5	63.32%
Grand Total	7.00%

Notice a couple of things here:

- days prior to Memorial Day are net losers with the exception of the last trading day prior to Memorial Day which soared a whopping 137% average annualized;

- The bullish pattern persisted through days 1-5, with days 1, 4, 5 most strong;

Were the data consistent in the latest decades? Overall, yes:

Year:	1980-2002:	Annualized:	1990-2002:	Annualized:	2000-2002:	Annualized:
-5	-0.24%	-44.63%	-0.42%	-64.84%	-0.36%	-59.24%
-4	0.11%	31.64%	0.11%	31.09%	-0.05%	-12.25%
-3	-0.07%	-16.90%	-0.03%	-7.46%	-1.09%	-93.59%
-2	0.14%	42.84%	0.42%	184.73%	0.28%	102.77%
-1	-0.12%	-25.96%	-0.32%	-55.58%	0.03%	7.34%
Memorial Day:	0.04%	9.96%	-0.09%	-19.19%	-0.88%	-89.06%
1	0.33%	127.64%	0.14%	41.08%	0.53%	274.74%
2	0.16%	50.06%	-0.06%	-14.24%	-0.78%	-85.84%
3	0.24%	80.71%	0.40%	171.53%	0.63%	384.20%
4	0.34%	135.25%	0.40%	169.90%	1.00%	1116.21%
5	-0.14%	-29.01%	-0.12%	-26.24%	-0.87%	-88.85%
Grand Total	0.07%	19.89%	0.04%	10.24%	-0.14%	-29.85%

The pattern even held up some in the recent bear market, with days 1-4 doing very well but 5 and 0 (the last trading day prior to Memorial Day) real stinkers.

Bottom line: one should go long the day following Memorial Day (or Memorial Day at the close), then exit the 4th trading day following Memorial Day at the close.