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Today's lesson is an update for the post-Labor Day analysis from last year. 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. Of course, the summers of 2006 and 2007 were anything but listless. We also have all heard how September and October have historically averaged the worst monthly performances (on the S&P 500) of all months. Of course, September for the last 5 years or so has been an up month. Regardless, we have learned to dread the return to trading in the early Fall, so how do we reconcile the anticipation versus the anxiety? I tackle the issue from a perspective beyond trying to predict the move for the day after Labor Day. Instead, I examine how strongly correlated the post Labor Day trade has been to other price changes over the year. I also examine whether these various time periods tend to show higher or lower % gains than the post Labor Day trade. I measure several time periods all based on the closing price of the S&P 500 on the day in question:
The time period covers 1962 to 2007. I measure the correlations of the post Labor Day trade to the other four time periods. I also measure 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. My conclusions this year are similar to last year since last year's post-Labor Day trade was consistent with recent historical patterns:
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