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Many traders look forward to the action after Labor Day. The Tuesday following Labor Day effectively marks the end of summer and the listless, low volume trading that supposedly occurs every year. Then again, we have all heard how September and October have historically averaged the worst monthly performances (on the S&P 500) of all months. We have learned to dread the return to trading in the early Fall! How do we reconcile the anticipation versus the anxiety? When I last tried to measure the importance of post Labor Day trading, I compared the day change in price of the S&P 500 at the close the Tuesday after Labor Day to the remaining index performance for September and October. The results were mixed. This year, I decided to tackle the issue from a much broader perspective. I looked for how strongly correlated the post Labor Day trade has been to other price changes over the year. I also looked at whether these various time periods tended to show higher or lower % gains than the post Labor Day trade. My results were quite surprising! I measured several time periods all based on the closing price of the S&P 500 on the day in question:
The time period covered 1962 to 2006. I next measured the correlations of the post Labor Day trade to the other four time periods. I also measured the correlation of the Year to Labor Day vs Year-Over-Year. Since all the correlations turned up positive, I added a table comparing the size of the price change from the post Labor Day trade to the other time periods. I have posted the results below to allow you to form your own conclusions. (I can also send to you the raw data of this analysis if you need it. Just email me.) This is what I conclude:
(If the table below has formatting problems or is hard to read, you can click here for a properly converted table) S&P 500 "Labor Day" Analysis (as of 9/4/06)
Be careful out there! |