Market Rally Continues - the Trend is Your Friend

Labor Day and the S&P 500: the market rises 48.3% annualized the day prior to Labor Day and 28.8% annualized the day after...

Labor Day and Stock Market:  the day before and after the holiday tend to rise.
One of the most fascinating aspects of the stock market is its tendency to rise shortly before and after holidays.  The reason this is fascinating is that it continues to persist despite widespread publicity.  The efficient market hypothesis (and common sense) dictate that if the market tends to rise on a given day, once this observation becomes widely known then people will buy the day before, changing the pattern or making it useless.  Yet seasonality shows no sign of going away anytime soon.
Labor Day is a profitable holiday to trade around as the table below shows.  To construct this table, I calculated the percentage change in the S&P 500 from 1980 to the present, then calculated the average percentage change as well as the percentage of times the market rose:

		Labor Day
Avg:		-0.15%	0.16%		0.10%	0.03%	-0.22%
Annzd:		-31.7%	48.3%		28.8%	6.8%	-41.6%
Close%:		39%	58%		50%	53%	50%
	Labor Day falls on:	-2	-1	Labor Day	1	2	3
1980	1-Sep	-1.2%	0.2%		1.1%	1.9%	-0.6%
1981	7-Sep	0.4%	-1.8%		-1.0%	-1.7%	0.4%
1982	6-Sep	1.7%	2.0%		-1.1%	0.7%	-0.2%
1983	5-Sep	-0.1%	0.5%		1.8%	0.0%	-0.1%
1984	3-Sep	-0.3%	0.0%		-1.1%	-0.4%	0.8%
1985	2-Sep	0.1%	-0.2%		-0.4%	-0.3%	-0.1%
1986	1-Sep	-0.2%	0.0%		-1.7%	0.6%	1.5%
1987	7-Sep	-0.5%	-1.1%		-1.0%	0.1%	1.0%
1988	5-Sep	-1.2%	2.4%		0.4%	0.1%	0.0%
1989	4-Sep	0.2%	0.6%		-0.3%	-0.9%	-0.3%
1990	3-Sep	-1.7%	1.2%		0.2%	0.4%	-1.2%
1991	2-Sep	0.0%	-0.3%		-0.8%	-0.6%	-0.2%
1992	7-Sep	0.3%	-0.2%		0.5%	0.5%	0.0%
1993	6-Sep	-0.4%	0.0%		-0.6%	-0.4%	0.2%
1994	5-Sep	-0.5%	-0.5%		0.2%	-0.2%	0.5%
1995	4-Sep	0.2%	0.3%		0.9%	0.2%	0.0%
1996	2-Sep	-1.1%	-0.8%		0.4%	0.1%	-0.9%
1997	1-Sep	-1.1%	-0.5%		3.1%	0.0%	0.3%
1998	7-Sep	-0.8%	-0.9%		5.1%	-1.7%	-2.6%
1999	6-Sep	-0.9%	2.9%		-0.5%	-0.5%	0.3%
2000	4-Sep	1.0%	0.2%		-0.9%	-1.0%	0.7%
2001	3-Sep	-1.7%	0.4%		-0.1%	-0.1%	-2.2%
2002	2-Sep	0.0%	-0.2%		-4.2%	1.8%	-1.6%
2003	1-Sep	0.6%	0.5%		1.4%	0.4%	0.2%
2004	6-Sep	1.1%	-0.4%		0.7%	-0.4%	0.2%
2005	5-Sep	0.1%	-0.3%		1.3%	0.2%	-0.4%
2006	4-Sep	-0.1%	0.6%		0.2%	-1.0%	-0.5%
2007	3-Sep	-0.4%	1.1%		1.0%	-1.2%	0.4%
2008	1-Sep	1.5%	-1.4%		-0.4%	-0.2%	-3.0%
2009	7-Sep	0.9%	1.3%		0.9%	0.8%	1.0%
2010	6-Sep	0.9%	1.3%		-1.1%	0.6%	0.5%
2011	5-Sep	-1.0%	-2.6%		-0.7%	2.8%	-1.0%
2012	3-Sep	-0.7%	0.5%

A few things jump out:
The day prior to and immediately following Labor Day are most profitable, rising 0.16% and 0.10% on average.   This may not sound impressive until you consider that this is only a single trading day; annualized, it works out to an impressive 48.3% and 28.8% respectively).  
Interestingly, the days before and after this profitable period tend to be weak with the market falling almost two-thirds of the time the second-to-last trading day prior Labor Day, and losing .22% on average on the third trading day following Labor Day.
The market rose 58% of the days prior to Labor Day.
As with any seasonal pattern, of course, this should be used as one of many factors when making a trading decision.  If you are considering going long the market anyway, it might make sense to buy at the open the day prior to Labor Day, and if you are considering selling, to wait until the close following Labor Day.