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Celebrate good times: Make the most of holiday trading

  • By Jeffrey A. Hirsch,
  • Wiley Global Finance WILEY GLOBAL FINANCE
  • Technical Analysis
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Everyone needs a break now and then, even the markets and market-followers. The New York Stock Exchange (NYSE) closes nine times throughout the calendar year to celebrate select holidays, including New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas.

Obviously there are many other holidays and special occasions that people observe when the market remains open. But never fear. In the age of the smart phone, traders and investors can still access market data and make trades. Although trading might be distracted during these times, most non-observed (by the NYSE) holidays have little discernable impact on the overall market. The exceptions are the Jewish “High Holidays” – Rosh Hashanah, Yom Kippur, and Passover – that exhibit influence on the markets.

When Santa fails to call

Just before or after the market’s Christmas closing, the market typically experiences a brief yet respectable rally from the last five trading days of the year through the first two trading days of the New Year. The S&P 500 has averaged a 1.5% gain during this seven-day span since 1953. We refer to this as the “Santa Claus Rally.”

When this seasonality has failed to materialize, it has often been a harbinger of bear markets or sizeable corrections in the coming year. But these were times stocks could have been purchased later in the year at much lower prices. Yale Hirsch discovered this phenomenon in 1972, summarized for decades by his mnemonic device, “If Santa Claus should fail to call; bears may come to Broad and Wall.”

Table 1 shows this rhyme was certainly on the mark in 2000, as the period suffered a 4.0% loss. On January 14, 2000, the Dow started its 33-month 37.8% slide to the October 2002 midterm election year bottom. NASDAQ cracked eight weeks later falling 37.3% in ten weeks, eventually dropping 77.9% by October 2002.

Saddam Hussein’s invasion of Kuwait cancelled 1990’s Santa Claus Rally. Three days later, on January 9, 1991, the S&P 500 had dropped 3% one week before the onslaught of the Persian Gulf War. This created a triple bottom at levels that may never be seen again.

Energy prices and Middle East terror woes may have grounded Santa in 2004. Early signs of recession and declining housing prices, which would eventually lead to financial crisis, spooked Santa in 2007. Previous absent Santa Claus Rallies in 1979 and 1981 preceded bear market lows in the following years of 1980 and 1982, respectively.

Table 1: Santa Claus Rally

S&P 500
New Year Rally % Year %
1953 1.80% – 6.6%
1954 1.70% 45%
1955 3.00% 26.4%
1956 – 0.9% 2.60% April Top
1957 1.20% – 14.3%
1958 3.50% 38.1%
1959 3.60% 8.50%
1960 2.40% – 3.0%
1961 1.70% 23.1%
1962 0.40% – 11.8%
1963 1.70% 18.9%
1964 2.30% 13.0%
1965 0.60% 9.10%
1966 0.10% – 13.1%
1967 – 1.4% 20.1% Bull
1968 0.30% 7.70%
1969 – 1.2% – 11.4% Bear
1970 3.60% 0.10%
1971 1.90% 10.8%
1972 1.30% 15.6%
1973 3.10% – 17.4%
1974 6.70% – 29.7%
1975 7.20% 31.5%
1976 4.30% 19.1%
1977 0.80% – 11.5%
1978 – 0.3% 1.10% Feb Low
1979 3.30% 12.3%
1980 – 2.2% 25.8% Bull
1981 2.00% – 9.7%
1982 – 1.8% 14.8% Bull
1983 1.20% 17.3%
1984 2.10% 1.40%
1985 – 0.6% 26.3% Bull
1986 1.10% 14.6%
1987 2.40% 2.00%
1988 2.20% 12.4%
1989 0.90% 27.3%
1990 4.10% – 6.6%
1991 – 3.0% 26.3% Gulf War
1992 5.70% 4.50%
1993 – 1.1% 7.10%
1994 – 0.1% – 1.5% Flat
1995 0.20% 34.1%
1996 1.80% 20.3%
1997 0.10% 31.0%
1998 4.00% 26.7%
1999 1.30% 19.5%
2000 – 4.0% – 10.1% Bear
2001 5.70% – 13.0%
2002 1.80% – 23.4%
2003 1.20% 26.4%
2004 2.40% 9.00%
2005 – 1.8% 3.00% Flat
2006 0.40% 13.6%
2007 0.00% 3.50%
2008 – 2.5% – 38.5% Bear
2009 7.40% 23.5%
2010 1.40% 12.8%
2011 1.10% – 0.003% Flat

Source: © Jeffrey A. Hirsch, Stock Trader’s Almanac

When Santa Claus comes to town

Rather than begin with the New Year holiday, history shows that it is best to begin with the last holiday of the previous year: Christmas. Historically, thanks to the Santa Claus Rally (the seven-trading-day period beginning after Christmas) the days before and after Christmas and New Year’s Day have been shown to be best for trading, especially tech stocks and small caps. NASDAQ and the Russell 2000 averaged gains of 3.1% and 2.4% from three days before Christmas to three days after New Year’s Day since 1990.

Gains may be contributed to year-end “holiday spirit”, year-end bonus payments, and the end of tax-loss selling. It doesn’t hurt that these holidays fall in the “Best Six Months” of the year and right in the middle of the best consecutive three-month span.

Looking at market action three days before and after a NYSE Holiday, it appears that the getaway day before and the day after can be impacted most by the holiday. The market consistently revels before and after Christmas. Table 2 shows traders holiday shopping for stocks at Christmastime. I have gone back to 1990 for a better perspective of trading in recent years during both secular bull and bear markets.

Table 2: Trading before and after Christmas Day observances (Since 1990)

Day Before
Day After
  # Advance # Decline Average % # Advance # Decline Average %
DJIA 14 8 0.28 16 6 0.24
S&P 500 14 8 0.26 16 6 0.22
NASDAQ 14 8 0.51 17 5 0.25
Russell 2000 16 6 0.4 18 4 0.37

Source: © Jeffrey A. Hirsch, Stock Trader’s Almanac

Less bullishness on last day can be the result of last-minute portfolio restructuring. Pushing gains and losses into the next tax year often affects the New Year’s first trading day. Recently this selling pressure has continued into the New Year. This selling is evident by the negative average percent change for Dow and S&P 500. Although the NASDAQ and Russell 2000 appear less negative, the NASDAQ has been down 10 of the last 11 trading days of the year after rising for 29 straight years, 1971 to 1999. Russell 2000 has been down 9 of the last 11 years on the last day after 21 consecutive years of gains, 1979 to 1999. See Table 3.

Table 3: Trading before and after New Year's Day observances (Since 1990)

Day Before
Day After
  # Advance # Decline Average % # Advance # Decline Average %
DJIA 10 12 -0.23 15 7 0.40
S&P 500 8 14 -0.21 10 12 0.27
NASDAQ 12 10 0.04 14 8 0.22
Russell 2000 13 9 0.35 8 14 -0.14

Source: © Jeffrey A. Hirsch, Stock Trader’s Almanac

Martin Luther King, Jr. Day

Significant fourth-quarter rallies have a tendency to correct or consolidate in January. Over the years this trend has begun at different times in January. For example, in 2008 it started on day one, but in 2010, it began mid-month. Regardless of the actual starting point, mid-month January weakness has had a negative impact on the most recent holiday to be formally observed by the NYSE, Martin Luther King, Jr. Day.

Recognition and observance of one of history’s most important civil rights leaders on the third Monday of January every year since 1998 can delay the start of option’s expiration week. A shortened trading week may also partly be responsible for the market’s poor performance on Tuesday, and frequently even worse trading action later in the week. Establishing a short position into strength on the Friday before this three-day weekend may have the best odds of a profitable outcome in the following week. See Table 4.

Table 4: Trading around Martin Luther King Jr. Day observance (Since 1998)

Day Before
Day After
  # Advance # Decline Average % # Advance # Decline Average %
DJIA 8 6 0.19 7 7 -0.33
S&P 500 9 5 0.25 7 7 -0.31
NASDAQ 9 5 0.26 7 7 -0.24
Russell 2000 10 4 0.23 7 7 -0.11

Source: © Jeffrey A. Hirsch, Stock Trader’s Almanac

Negative Presidents’ Day

Presidents’ Day is the lone holiday that exhibits weakness the day before and after. Trading has turned more negative over the last twenty-two years. The Friday before this mid-winter three-day break is exceptionally bad, whereas the Tuesday after is not as brutal and has shown some improvement recently although average losses are greater. See Table 5.

Table 5: Trading around President's Day observance (Since 1990)

Day Before
Day After
  # Advance # Decline Average % # Advance # Decline Average %
DJIA 6 16 -0.34 10 12 -0.33
S&P 500 5 17 -0.47 11 11 -0.44
NASDAQ 5 17 -0.68 6 16 -0.88
Russell 2000 10 12 -0.27 7 15 -0.64

Source: © Jeffrey A. Hirsch, Stock Trader’s Almanac

Two unusually strong market showings in 1991 and 2003 were related to military action in the Persian Gulf. In 1991 the month-long punishing air war waged by coalition forces to liberate Kuwait from Saddam’s August 1990 invasion began to impact Iraqi forces. On February 15, 1991, the Friday before President’s Day, Iraq’s offer to pull out of Kuwait, for the first time tied to lifting sanctions, was rejected by President Bush as a “cruel hoax.” The following Tuesday after the holiday, General Schwarzkopf said Iraqi forces were “on the verge of collapse.” These two clear signs of capitulation were celebrated on Wall Street with buying. In February 2003 the Dow had dropped 13.2% from the previous November high as the anticipation of another fray into Iraq loomed over the world. As the invasion of Iraq became imminent the market rallied the day before and after Presidents’ Day before falling to its final 2003 low the week before the March 19 offensive.

Leading up to the Friday before Presidents’ Day, the market is quite strong three days before the holiday weekend. Fridays have offered the most consistent record of declines, but those losses historically have not carried over into Tuesday.

The Luck of the Irish

Saint Patrick’s Day is the only recurring holiday in March. Good Friday and Easter land in March from time to time, but that has only happened twelve times in the last sixty-two years. Saint Patrick’s Day, however, occurs on the same day every year. Although there is no official stock market closing or bank holiday, it is celebrated by millions (perhaps billions) of people every year, and includes festivities close to Wall Street. New York City has hosted an annual parade since 1762.

Gains on Saint Patrick’s Day, or the day after when it falls on the weekend, have been greater and much more consistent than the day before. Anticipation of the patron saint’s holiday and preparations for the parade down Fifth Avenue may cause equity markets to languish. Perhaps the absence of those participating in the festivities drives the snakes out of Wall Street, leaving only the strongest professional hands to gather up the gold at the end of the rainbow. Or maybe it’s the fact that Saint Pat’s usually falls in Triple-Witching Week. Table 6 illustrates that since 1990 the market is weaker before Saint Pat’s, but only suffered a handful of losses the day of or after.

Table 6: Trading around St. Patrick's day (Since 1990)

Day Before
Day After
  # Advance # Decline Average % # Advance # Decline Average %
DJIA 12 10 0.22 16 6 0.62
S&P 500 14 8 0.18 17 5 0.66
NASDAQ 11 11 -0.11 15 7 0.71
Russell 2000 9 13 -0.19 16 6 0.61

* Either March 17, or the following trading day when St. Patrick's Day falls on a weekend.

Source: © Jeffrey A. Hirsch, Stock Trader’s Almanac

A “Better” Good Friday

Good Friday is the one NYSE holiday with a clear positive bias before and negativity the day after. NASDAQ is up 15 of the last 17 days before Good Friday and eleven straight since 2001. The day after Easter has the worst post-holiday record though average losses are steeper after Presidents’ Day. The S&P 500 was down 16 of 20 years on the day after Easter, but is has been up six of the last eight years. Table 7 shows a strong market before Good Friday and weakness after.

When Good Friday falls in April, the day before is more positive than when it lands in March. The S&P 500 is up nine of the last eleven times. The day after Easter is still negative, though less so than in March. This is likely related to March’s end-of-quarter volatility and the overall bullishness of April, the best Dow month of the year.

Table 7: Trading around Good Friday observance (Since 1990)

Day Before
Day After
  # Advance # Decline Average % # Advance # Decline Average %
DJIA 15 7 0.48 11 11 -0.08
S&P 500 15 7 0.53 9 13 -0.13
NASDAQ 16 6 0.58 11 11 -0.29
Russell 2000 16 6 0.61 6 16 -0.21

Source: © Jeffrey A. Hirsch, Stock Trader’s Almanac

Memorial Day and the stock market

Congress voted to recognize Memorial Day with the National Holiday Act of 1971. Since 1971, Memorial Day has been observed on the last Monday in May. As shown in Table 8, it has had a weak bias ahead of the long weekend and strength after the holiday. Early departures for the first long “summer” weekend have driven the Dow down in three of the last four years.

Market performance the week after Memorial Day has been erratic, usually following the short-term trend of the market. The Dow Jones Industrials was up twelve years in a row from 1984 to 1995. The last sixteen years it has been up seven times with some substantial, triple-digit gains in: 1999, 2000, 2003, 2007-2009. However, in the past two years there have been substantial declines, 204.66 in 2010 and 290.32 in 2011.

Table 8: Trading around Memorial Day observance (Since 1990)

Day Before
Day After
  # Advance # Decline Average % # Advance # Decline Average %
DJIA 11 11 -0.17 15 7 0.27
S&P 500 11 11 -0.10 11 11 0.20
NASDAQ 11 11 -0.08 12 10 0.32
Russell 2000 12 10 -0.01 11 11 0.29

Source: © Jeffrey A. Hirsch, Stock Trader’s Almanac

Few fireworks on Independence Day

Trading on the day before and after the Independence Day holiday has often been lackluster. Volume tends to decline on either side of the holiday as vacations begin early and finish late. Although improving modestly in recent years, since 1980, DJIA, S&P 500, NASDAQ, and Russell 2000 have recorded average losses on the day before and the day after. The same summer-time vacation theme consisting of early departures and late returns is the most likely culprit. See Table 9.

Table 9: Trading around Independence Day observance (Since 1990)

Day Before
Day After
  # Advance # Decline Average % # Advance # Decline Average %
DJIA 12 10 0.03 9 13 0.03
S&P 500 12 10 0.03 11 11 -0.07
NASDAQ 11 11 -0.06 9 13 -0.09
Russell 2000 11 11 -0.18 9 13 -0.16

Source: © Jeffrey A. Hirsch, Stock Trader’s Almanac

Trading the Labor Day markets

For many, Labor Day weekend is the prime vacation time. Back in the first half of the 20th century approximately one-fourth of the country worked on farms as compared to less than 2% nowadays. Business activity ahead of the long weekend was more energetic in the old days. From 1950 through 1977 the three days before Labor Day pushed the Dow Jones Industrials higher in twenty-five of twenty-eight years. Since then bullishness has shifted to the last day before and the two days after. This frequently coincides with early September strength. While positive across-the-board gains on the day before and after are prevalent since 1990, the frequency of these gains is only slightly better than half the time. The small caps of the Russell 2000 have the most consistent record of gains on the day before, as shown in Table 10.

Table 10: Trading around Labor Day observance (Since 1990)

Day Before
Day After
  # Advance # Decline Average % # Advance # Decline Average %
DJIA 11 11 0.09 13 9 0.26
S&P 500 11 11 0.09 12 10 0.25
NASDAQ 12 10 0.15 12 10 0.16
Russell 2000 15 7 0.10 10 12 0.22

Source: © Jeffrey A. Hirsch, Stock Trader’s Almanac

“Sell Rosh Hashanah, buy Yom Kippur, sell Passover”

The saying on Wall Street was, “Buy Rosh Hashanah, Sell Yom Kippur.” This mantra stopped working in the middle of the last century, but it still gets tossed around every autumn when the Jewish High Holidays roll around. Instead, we have observed that the wiser course of action may be to “Sell Rosh Hashanah, Buy Yom Kippur, Sell Passover.” The basis for the new pattern is that with many traders and investors busy with religious observance and family, positions are closed out and volume fades creating a buying vacuum. See Table 11.

Table 11: Sell Rosh Hashanah, Buy Yom Kippur, Sell Passover

  Rosh Hashanah
to Yom Kippur
Dow % Change
Yom Kippur
to Passover
Dow % Change
1971 -2.7% 6.40%
1972 -1.7% 0.90%
1973 2.30% -12.7%
1974 -0.3% 20.70%
1975 -3.9% 22.10%
1976 -3.1% -5.2%
1977 -1.8% -3.2%
1978 4.10% -3.4%
1979 -2.3% -10.1%
1980 2.70% 4.30%
1981 4.20% -4.0%
1982 0.40% 22.80%
1983 -1.5% -5.0%
1984 -2.4% 6.50%
1985 0.30% 39.60%
1986 1.40% 25.30%
1987 2.10% -24.7%
1988 1.00% 13.70%
1989 3.70% -2.2%
1990 -4.1% 18.80%
1991 0.20% 11.60%
1992 -3.0% 7.10%
1993 -2.5% 6.50%
1994 1.80% 6.40%
1995 -0.5% 19.90%
1996 1.00% 15.90%
1997 0.40% 11.80%
1998 -0.7% 25.40%
1999 -1.9% 0.20%
2000 -0.8% -7.4%
2001 -2.7% 19.80%
2002 -0.6% -0.5%
2003 3.00% 10.20%
2004 -1.8% 1.10%
2005 -3.0% 9.00%
2006 1.40% 7.20%
2007 2.90% -7.0%
2008 -20.9% -5.8%
2009 -0.3% 11.40%
2010 1.80% 15.60%
2011 -0.5% 17.60%
Average -0.7% 7.00%
# Up 18 28
# Down 23 13

Source: © Jeffrey A. Hirsch, Stock Trader’s Almanac

When the holiday falls on a weekend, the prior market close is used. It’s no coincidence that Rosh Hashanah and Yom Kippur fall in September or October, two dangerous and opportune months. Passover conveniently occurs in March or April, right near the end of our “Best Six Months” switching strategy.

Selling stocks before the eight-day span of the high holidays has avoided many declines, especially during uncertain times like 2008, while being long Yom Kippur to Passover has produced more than twice as many advances, averaging gains of 6.7%. This trade worked particularly well in 2009 and 2010. It often pays to be a contrarian when old bromides are tossed around, buying instead of selling Yom Kippur.

Trading the Thanksgiving market

For 35 years the combination of the Wednesday before Thanksgiving and the Friday after had a great track record, except for two occasions. Attributing this phenomenon to the warm “holiday spirit” was a no-brainer, but publishing it in the 1987 Stock Trader’s Almanac was the “kiss of death.” That year Wednesday, Friday, and Monday were all crushed, down 6.6% over the three days. Since 1988 Wednesday-Friday gained 14 of 24 times with a total Dow point-gain of 451.20 versus Monday’s total Dow point-loss of 619.07, down nine of 13 since 1998.

A reversal was seen in 2011. Then, Wednesday and Friday got slammed 263 Dow points and bounced 291 points the following Monday. European debt concerns, signs of slowing growth in China, and another budget deal failure in Washington, D.C. caused the worst Thanksgiving week since 1932 and the third worst loss since 1901. But a 16.4 % increase in holiday shopping over the weekend and news that European leaders were advancing a plan to deal with the regions debt crisis resulted caused market advances across the board on Monday.

The best strategy may have been to go long into weakness Tuesday or Wednesday, and have stayed in through the following Monday or exited into strength prior. Dubai’s debt crisis cancelled Black Friday on Wall Street in 2009; DJIA shed 154.48 in the day’s shortened trading session. All four indices have declined on the day after Thanksgiving the past three years. See Table 12.

Table 12: Trading around Thanksgiving Day observance (Since 1990)

Day Before
Day After
  # Advance # Decline Average % # Advance # Decline Average %
DJIA 14 8 0.17 13 9 0.13
S&P 500 14 8 0.22 13 9 0.17
NASDAQ 16 6 0.39 16 6 0.49
Russell 2000 15 7 0.36 17 5 0.30

Source: © Jeffrey A. Hirsch, Stock Trader’s Almanac

Holiday trading at a glance

The Stock Trader’s Almanac has tracked holiday seasonality annually since the first edition in 1968. Stocks used to rise on the day before holidays and sell off the day after, but now each holiday moves to its own rhythm.

Before heading off for your next long weekend, remember this:

  • Thanks to the Santa Claus Rally, the days before and after Christmas and New Year’s Day have historically been the best. However, trading around the first day of the year has been mixed. Traders have been selling more the first trading day of the year recently.
  • Bullishness before Labor Day and after Memorial Day is affected by strength the first day of September and June. The second worst day after a holiday is the day after Easter. Surprisingly, the following day is one of the best second days after a holiday, right up there with the second day after New Year’s Day.
  • Presidents’ Day has been the least bullish of all the holidays, bearish the day before and three days after. NASDAQ has dropped 17 of the last 22 days before Presidents’ Day (Dow, 16 of 22; S&P 17 of 22; Russell 2000, 12 of 22).

Like the other recurring stock market cycles there is an ebb and flow surrounding holiday trading. The patterns are never exactly 100% the same. Exogenous events can knock them off kilter, and they change gradually over time with the shifts in human behavior and social traditions.

JEFFREY A. HIRSCHis editor-in-chief of the Stock Trader's Almanac and Almanac Investor newsletter, and the author of The Little Book of Stock Market Cycles (Wiley, 2012).

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Article copyright ©2013 by Jeffrey A. Hirsch. Adapted from the Stock Trader’s Almanac with permission from John Wiley & Sons, Inc. The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
The data and analysis contained herein are provided "as is" and without warranty of any kind, either expressed or implied. Fidelity is not adopting, making a recommendation for or endorsing any trading or investment strategy or particular security. All opinions expressed herein are subject to change without notice, and you should always obtain current information and perform due diligence before trading. Consider that the provider may modify the methods it uses to evaluate investment opportunities from time to time, that model results may not impute or show the compounded adverse effect of transaction costs or management fees or reflect actual investment results, and that investment models are necessarily constructed with the benefit of hindsight. For this and for many other reasons, model results are not a guarantee of future results
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