Happy Thanksgiving! Holiday Effect Giving Stocks Upward Bias Today – Buy Weekly Calls?

By Chris Diodato

I'm the type of person that usually wins poker by manipulating the players.  Same with playing the stock market; I take advantage of crowd psychology.  Today, however, has always been one of the trading days that I come to the market to play pure probabilities.

What's so special about today?  There has been a strange "effect" noted by several analysts regarding trading days and holidays.  They found that the trading day before a market holiday was usually more positively biased than most trading days.  Also, it was discovered that the day after the holiday was usually negatively biased.  Therefore, today, the day before thanksgiving, the market has a positive bias.

Here are the summary statistics I gathered for the last 60 years in the S & P 500.  The data goes to 2010.  To download my spreadsheet from my DropBox, click here

Average Gain 0.41%
% Losers 21.67%
% Winners 78.33%
Standard Deviation 0.84%

The trading strategy buys the S & P 500 index at the close of two days before Thanksgiving and sells out of the position at the end of trading the day before Thanksgiving.

Notice that the frequency of winning trades with this strategy is quite high, especially when the average for other days gives us only a probability of slightly above 50% that the market will gain on the day.

While the average gain is not too impressive, this "holiday effect" can still offer traders who use leverage a trading "edge" today.  Good luck!

 

Profile photo of DDuring college Chris (D) earned the Chartered Market Technician (CMT) designation, and is currently the youngest CMT in the world today. The CMT certifies Chris' knowledge of market timing and risk management approaches. He tends to look for broad market moves and take advantage of them with index funds. The strategy he principally uses is mostly quantitative, and, tested, and has avoided or capitalized on every major recession since the 1940s.

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