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Identifying the Best Buying & Selling Days & Months

Identifying the Best Buying & Selling Days & Months
April 20
16:13 2012

If you spend enough time conducting technical analysis of stocks, you might eventually wonder whether they follow any predictable patterns with regard to certain days of the week or months of the year. After all, many aspects of market activity follow consistent cycles: options contracts expire the same day each month, quarters end on the same four days every year, holidays fall at the same time, and so forth.

Even humans collectively behave similarly—you may have heard the advice to never buy a product manufactured on a Monday or a Friday (as if you can usually tell) because workers are either recovering from or anticipating the weekend. And Wall Street has its own pithy bits of wisdom, like the oft-heard “Sell in May and go away,” referring to the market’s normally lackluster performance during the summer months.

As it happens, analyzing the best days and months to buy or sell (based on whether a majority of stocks advance or decline) is not particularly difficult, though it can be labor intensive.

Here we’ll examine the 2000 to 2002 and 2007 to 2009 bear markets and the 2002 to 2007 and 2009 to 2010 bull markets.

The bottom line is that for both bull markets, Friday was the best day to buy and Wednesday was the best day to sell. For both bear markets, Thursday was the best day to sell. The best buying days were split but both fell early in the week: Monday in the 2007-09 market and Tuesday in the 2000-02 market.

Those are overall market figures, however. Drilling down into specific indices reveals slightly different patterns. In either type of market, the best days were as follows:

  • Dow Jones Industrial Average: Monday is the best buying day; Wednesday and Friday are the best selling days.
  • S&P 500: Monday is the best buying day; Wednesday and Friday are the best selling days.
  • Nasdaq: Monday is the best buying day; any day but Tuesday are good selling days.
  • Dow Utilities: Thursday is the best buying day; Monday and Friday are the best selling days.
  • Dow Transports: Thursday is the best buying day; Monday is the best selling day.

This performance begs the question of what’s wrong with Mondays that depresses stock prices; perhaps traders just aren’t ready to let go of the weekend. Why the Dow Utilities and Transports stand in opposition to the broader pattern is curious, however.

For months, the methodology looks at the number of up days for the month in each of the three major indices, presented on a percentage basis (that is, percent of up days).

For the DJIA (looking back to October 1, 1928), September is clearly the most dismal month, with only 39.5% up days. The next three worst months were June (50.6%), May, (53.1%), and February (54.9%). Only five months were above 60%: August (60.5%), November (61.0%), July (61.7%), January (64.6%), and the star performer December at 72.0%. (Perhaps there’s something to the “Santa Claus rally” after all.)

For the S&P 500 (looking back to January 3, 1950), September is still dismal, at 44.1% up days. The next three worst months were June (51.7%), July (53.3%), and February (52.5%). (A much broader index than the DJIA, the S&P 500 seems to better illustrate the “Sell in May and go away” adage, though since May has 58.3% up days compared to April’s 68.3%, better advice might be “Sell in April and go away,” to rebuy when prices are depressed in September.) January comes in at an even 60.0%, and the other four best performers are March (65.0%), November (66.7%), April as we just mentioned, and again December at a stellar 75.0%.

For the Nasdaq (looking back to February 5, 1971), September is not the dog—that dubious honor falls to both February and July, at 48.7% up days. The next three worst months are October (51.3%), September (53.8%), and August (56.4%). Again, five months have over 60% up days: May (61.5%); January, March, and April, all at 64.1%; and November (66.7%). December is not a top performer for this index, turning in a middling 59.0% performance.

We won’t attempt to puzzle out the meanings behind these trends, though we do recommend casual speculation as good cocktail party talk (but only for your friends with an interest in investing!). Nevertheless, the facts speak for themselves, and offer a good basis for guiding trades or even further research to look for tradable patterns.

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