I may not have communicated it well, so I will try again. Imagine the entire market gain between 1928 and 1975 condensed nto two years of trading. That is the record of the Pre Holiday Seasonality Indicator. Extenseive research has shown that stock prices behave in a significantly postive manner in each of the two days preceding a market holiday. The original research was based on an analysis of the SP500 from 1928 to 1975 daily index price behavior around the 419 holiday market closing that occurred in that time frame. During that period, the S&P 500 advanced from 17.53 to 90.19, an increase of 414% excluding dividends - in other words, $10k invested in Jan 1928 would have been worth $51.4k in December 1975.
Treating all 419 holidays as an aggregrate traading period, the market quadrupled - almost as much as the whole 48 year gain. Based on 250 trading daysin a year, this growth was accomplished in 1 year and 8 months. To understand the enormity of this return, had the market been able to sustain the average rate of growth throughout the entire 48 years that it did in those 419 days, the 10k would have grown to $22 sextillion (22 followed by 24 zeros)for the second day alone, and $6.8 trillion for just day 1.
If one investor started with 10k and invested it equally each day of the year and then selling at year end, and did so for 48 years, he would have ended up with $357 in 1975. A buy and hold strategy (all in Janyuary 1928, sell all in December 1975) would end up with $51,441. And one who invested each year equally at each preholiday period, would have $1,440,716. The strategy doesn't develop a sell strategy. It just sells at year end.
A summary oftheresearch through that period can be found in "Stock market Logic" by Fosback, pages 159-164. The entire preseasonality indicator actually includes month end time frames which are also above average percent gain periods, although that is not included in the above calculations.
The point is that the markets are generally down on those days as traders, etc. offload holding and cover shorts before three day weekends in order to hedge against good news over the weekend - and therefore those are generally better times to buy for position holds.
ie, "buy low"
hope this clears it up
lastshadow |
