Nov

13

 One of the greatest regularities known to seasonal players is the tendency for the market to rise on the first day of the month. It was strange, as for many years despite its wide dissemination, it continued. Indeed for the last 180 of them, the market has rises about 62% of the time, averaging up about 1/3 of a % on the day. Indeed, the entire market gain during the last 15 years in a sense came on the first day of the month, and you would have lost money by buying on all the other days.

How could something so widely anticipated and disseminated actually give someone a chance to profit? Possibly it was due to the fixed schedule of purchases and sales of investors who received pay checks and institutions that put their money to work at the end of the month. Based on the regularity, an ETF giving investors the opportunity to participate in the regularity was formed. It is interesting to consider the performance of the market on the first day of the month in 2011 in that context.

Performance first day of month 2011 S&P futures

Jan +08

Feb +17

March -21

April +8

May -11

June -32

July +20

Aug -45

Sep -49

Oct -08

Nov -25

The average is down 10, about 0.8% down so far this year with six of the last 7 being particularly ruinous.

Thus, another seasonal regularity, one of the most long standing, and one that had the most reasonable foundation for working goes to boot hill. 


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4 Comments so far

  1. ed on November 13, 2011 12:15 pm

    All such foolish products (the etf) should be examined for a long term short sale.

  2. Gary Phillips on November 14, 2011 2:19 pm

    just a thought on the waning persistence of this anomaly:

    continued high levels of realized volatility, increases a portfolio’s VaR,

    which calls for risk to be curtailed, and the portfolio’s asset allocation to be rebalanced, in order to minimize risk, rather than to maximize gains.

    as the major determinant of a portfolio’s risk/ reward profile, the benefits may outweigh the costs, even if it is executed monthly

  3. Andre Wallin on November 15, 2011 9:56 am

    If you can identify the intraday market structure of say the 15 minute bar or whatever you can look back to a similar situation and find what happened after. Similar, where day bar and intraday are both similar. I identify where we are on the day bar chart and it’s price action and market structure and find a time in history where day bar price action and market structure is similar. If you zoom in on the similar historical day bar price action and you see similar intrday price action you have ‘looks like a duck, quacks like a duck, so it’s probably not a chicken’ type of scenario where immediate future will have similarities and a definite edge for the speculator.

  4. david on November 16, 2011 8:48 pm

    What next? The surcease of the Santa Clause Rally?

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