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.
