Daily Commentary - Posted on Sunday, September 5, 2010, 11:49 AM GMT +1

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Sep Sunday 5

Monthly and Labor Day Seasonalities

I’am back from vacation, therefore the infrequent postings during the last two weeks.


The market started into the month of September with some impressive gains. The SPY (S&P 500 SPDR.) posted three consecutive sessions with a gain greater than +0.90% (+2.99%, +0.93%, +1.30%), and is up +5.30% month-to-date on close of September’s third session, at the same time the session immediately preceding Labor Day (exchange holiday) on Monday.

Table I below shows the SPY‘s next session performance (in this event the session on Tuesday, September 7, 2010) assumed one went long on close …

  • Strat. #1: of a third consecutive session with a gain gt. +0.90%,
  • Strat. #2: of a third higher close (gt. 0%) during the first three sessions of a(ny) month,
  • Strat. #3: of a third higher close (gt. +0.90%) during the first three sessions of a(ny) month,
  • Strat. #4: of the third sessions of a month where the SPY is up at least +5.00% month-to-date,
  • Strat. #5: of a third consecutive positive (higher close) session immediately preceding an exchange holiday,
  • Strat. #6: of a third consecutive positive (higher close) session immediately preceding Labor Day,
  • Strat. #7: of a positive session (gain gt. +1.00%) immediately preceding Labor Day.

All seven setups were triggered on close of Friday, September 3, 2010.

Here is the link to the stats in a more ‘readable’, original size: Statistics 1

Leaving alone the fact that on Monday the markets will be closed for Labor Day (Strat. #6, #7), historical probabilities and odds are (partly heavily) lopsided in favor of an at least short-term consolidation of the market’s recent gains (a lower close). Even for setup #2 (three higher closes right at the start of any month, not a rare occurrence) where historical probabilites and odds for a fourth higher close (on Tuesday’s session) are more or less even, the median trade is negative, and the distribution of returns sub-par as well (the median trade shows a significantly lower rate of return than the median return (=50%) within the at-any-time distribution of daily returns).

But there’re good news as well: When the market started on a strong note into the month (Strat. #2 with three higher close on the first three sessions of a month), out of those 45 occurrences the SPY lost more than -1.00% (max. loss -1.02%) on the fourth session only once,

In addition, it is at least interesting to note that since 01/01/1990 there were two other occurrences where the SPY posted three consecutive higher closes immediatley preceding Labor Day: 08/29/2003 and 09/01/1995.

With respect to both occurrences, the SPY did never look back over the course of the then following five sessions, means it never posted a close below the session’s close immediately preceding Labor Day (in this event Friday, September 3, 2010) during the then following five sessions (and posted a lower close in comparison to the previous session’s close over the course of the then following five sessions only once, all other sessions closed with a gain) .

In good fun (especially due to the – statistically irrelevant – sample size of two occurrences only): But on close of Tuesday, September 7, 2010 something has to give (will fail): in the event of a(nother) higher close, setups #3 and #4 (a strong start into the month) – up to now with a spotlessly success rate calling for a lower close -, or – in the event of a lower close – setup #6 (three higher closes immediately preceding Labor Day) up to now with a spotlessly success rate calling for higher closes over the course of all of the next five sessions.

Successful trading,


Disclaimer: No position in the securities mentioned in this post at time of writing.

Remarks: Due to their conceptual scope – and if not explicitely stated otherwise , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in, do not use leverage (e.g. leveraged ETFs) but a marginable account is mandatory , do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility) , do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets).


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