Daily Commentary - Posted on Friday, January 14, 2011, 8:38 AM GMT +1

3 Comments


Jan Friday 14

Martin Luther King, Jr. Day Week

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On Monday, January 17, 2011 the NYSE is closed in observance of Martin Luther King, Jr. Day, celebrated on the 3rd Monday in January and being an exchange holiday since 1998, a relatively recent addition. But since its addition to the list of exchange holidays, the stock market regularly looks to an “unfavorable season” during the week starting with Martin Luther King, Jr. Day.

Table I below shows all occurrences, the S&P 500′s performance during Martin Luther King, Jr. Day week ( 1 to 4 sessions ), and the maximum gain and maximum drawdown – on a close to close basis – during the period under review, assumed one went long on close of the session immediately preceding Martin Luther King, Jr. Day in the past (like on close of January 14, 2011).


+ no close below trigger day’s close during period under review
no close above trigger day’s close during period under review

Probabilities and odds for a higher / lower close one and two sessions later (Tuesday to Wednesday next week) are more or less evenly distributed, but are heavily tilt in favor of the downside at the end of Martin Luther King, Jr. Day week (day #4). The S&P 500 closed at a higher level at the end of the week on only 4, and up 1.0%+ only once, but lower on 9 occurrences, and down -1.0%+ on 7 occurrences. The median weekly change since addition to the list of exchange holidays is -1.41%, and the S&P 500 did not manage a single close above the previous’ end-of-week close during Martin Luther King, Jr. Day week on 4 out of those 13 occurrences.

Conclusions:

If the market is really ‘due‘ for a short-term correction, the next week might provide a favorable (seasonal) opportunity for the bears.

Successful trading,

Frank

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

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Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), 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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Disclaimer

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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Comments (3)

 

  1. […] This post was mentioned on Twitter by Frank Hogelucht, Quant Blogs. Quant Blogs said: Trading the Odds: Martin Luther King, Jr. Day Week http://bit.ly/e30oDl […]

  2. Denali92 says:

    I actually think the day after MLK day looks like a proper inflection point as it marked a top in 2010 and bottoms in 2008 and 2009.

    I have not studied all of the data, but it does make sense for other reasons, particularly the fact that we generally either rally in to earnings season and fall or fall in to it and rally.

    The one twist that may mean the week does not mark a turning point top is that it is Opex week and we rarely top during Opex week. The only time we did recently was Oct 2008.

    THANKS!

    -D

    • TradingTheOdds says:

      Denali92,

      look at January’s option expiration weeks, most recent occurrences show a significantly negative bias. I’ll do another posting probably later this day.

      Best,
      Frank

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