Monday, February 28, 2011

First Trading Day Of The Month - Voodoo Statistics

Here's a few quick stats...
  • The first trading day of the month has been positive for the last 7 consecutive months.
  • 19 out of the last 23 months (83% of the time) the first trading day has been positive.
  • Of those 19 days the average gain has been 1.3% in the S&P 500.
Here's a few other things to think about...
  • Once every joker running a free blog is aware of a trend, the trend just might be over.
  • Of the 4 out of the last 23 months where the first trading day was NOT positive, the average loss was 1.7% in the S&P 500.
  • The pattern over the past 23 months has gone: 5 UP, 2 DOWN, 7 UP, 2 DOWN, 7 UP (I don't have data beyond 23 months, so the initial 5 UP could actually be greater - I don't know).
The point of the above is that if you're looking for a pattern, then maybe you should be expecting the first trading day for March and April to be down, not up (i.e., 7 UP followed by 2 DOWN). And based on the average down days, you might consider preparing yourself for a 1.7% decline, or a drop of  22.5 points based on yesterday's close in the S&P.

Another way to look at things is that if you average the first day of the month with the last day of the preceding month, the average gain has only been 0.2% over the last 23 months. Considering the S&P posted a gain of 0.6% today, statistically we should be looking for a loss of 0.4% tomorrow, or about 5.5 points on the S&P.

Alternatively I suppose you could just flip a coin. But I've got my S&P hedges on just in case...

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