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Written and copyright © 2009-2013 by Thomas N. Bulkowski. All rights reserved.
This article studies how price behaves before and after stock market holidays.
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Holiday Research Summary
Based on the results detailed below, the market does not close higher the day before most market holidays. In fact, it's more accurate to say that it closes lower the
day before holidays as well as the day after.
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Notable exceptions to this are the day before Christmas as well as the days after labor day and thanksgiving. Price tends to close higher at least 67% of the time on those days.
If you want to short the market before a holiday, then the best times to do that are the day before Washington's birthday in a bull market and before memorial day in a bear market.
Those work at least 60% of the time.
Holiday Research Background and Methodology
I received an email saying that the market before labor day climbed, and it was a bad time to short stocks. I decided to test whether or not that was true for all market holidays.
When does the market close for a holiday? That was easy to find out, and here is the table
- New Years day (January 1)
- Martin Luther King jr (third Monday in January)
- Washington's birthday/President's day (third Monday in February)
- Good Friday (Friday preceding Easter Sunday)
- Memorial day (last Monday in May)
- Independence day (July 4)
- Labor day (first Monday in September)
- Thanksgiving (fourth Thursday in November)
- Christmas (December 25)
I had good definitions on all holidays except for good Friday. I lost patience wading through religious text, trying to figure out when the holiday occurred, so that is not
included in the test.
I used 571 stocks beginning from January 1, 1995 through September 7, 2009. Not all stocks covered the entire period, but sample counts were high, especially for the bull markets.
I measured the close to close price change from the day before the holiday (the close two days before
to the day before), which I call the pre-holiday, and post holiday measures from the close the day before the holiday to the day after.
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In some cases, the day after the holiday the market is opened only half the day, but I did not concern myself with this nor did I separate out the findings for those holidays
that made three day weekends. If you own the stock and it goes up, that's important to know. Whether or not it went up because of a three day recess or a half day's worth of trading
is less important than adding bucks to the bank.
I split the results into two periods: bull markets and bear markets. The bear market spans two periods, from March 24, 2000 to October 10, 2002 and October 11, 2007 to March 6, 2009.
Those two periods are when the S&P 500 index dropped more than 20%, high to close, before the trend changed (a rise of 20%). Everything outside of those two periods constituted a bull market.
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Holiday Research Results
Using the methodology described above, I captured the number of pre- and post-holiday price changes. The top half of the table shows the changes for bull markets and the lower
half describes the results for bear markets.
For example, price closed higher 2,322 times out of 5,218 tries the
day before New Years, or 44.5% of the time. The next trading day, price closed higher 46.8% of the time. Anything below 50% means price closed lower; above 50% means a higher close.
Thus, the two days surrounding the start of the year saw lower prices.
| Holiday | Pre-holiday
samples | Higher
Closes | Pre
Change | Post holiday
samples | Higher
Close | Post
Change | Market |
| New Year's Day | 5218 | 2322 | 44.50% | 5219 | 2443 | 46.80% | Bull |
| Martin Luther King Jr. | 5232 | 2957 | 56.50% | 5233 | 2401 | 45.90% | Bull |
| Washington's Birthday | 5247 | 2059 | 39.20% | 5250 | 2664 | 50.70% | Bull |
| Memorial Day | 5378 | 3039 | 56.50% | 5381 | 2603 | 48.40% | Bull |
| Independence Day | 5394 | 2529 | 46.90% | 5396 | 2372 | 44.00% | Bull |
| Labor Day | 4846 | 2680 | 55.30% | 4848 | 3285 | 67.80% | Bull |
| Thanksgiving | 4824 | 2735 | 56.70% | 4825 | 2361 | 48.90% | Bull |
| Christmas | 4834 | 2159 | 44.70% | 4835 | 2276 | 47.10% | Bull |
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| New Year's Day | 2133 | 1006 | 47.20% | 2133 | 938 | 44.00% | Bear |
| Martin Luther King Jr. | 2133 | 984 | 46.10% | 2133 | 676 | 31.70% | Bear |
| Washington's Birthday | 2134 | 788 | 36.90% | 2134 | 614 | 28.80% | Bear |
| Memorial Day | 2045 | 570 | 27.90% | 2045 | 1091 | 53.30% | Bear |
| Independence Day | 2053 | 1021 | 49.70% | 2054 | 1045 | 50.90% | Bear |
| Labor Day | 2058 | 910 | 44.20% | 2058 | 777 | 37.80% | Bear |
| Thanksgiving | 2131 | 942 | 44.20% | 2131 | 1645 | 77.20% | Bear |
| Christmas | 2133 | 1432 | 67.10% | 2133 | 1322 | 62.00% | Bear |
Highlighted in red are the days in which price closed lower most often. Highlighted in green
are those days with the highest percentage of up closes.
Holiday Research Conclusion
If you count the number of holidays that price closes higher, you get four times (50% of the time) pre-holiday in a bull market and just once in a bear market (12% of the time).
Post holiday, price closes higher twice in a bull market (25%) and four times in a bear market (50% of the time).
Combining all of the scores, we find that the market closes higher 5 times out of 16 contests or 31% of the time before a holiday and 6/16 or 38% of the time after a holiday. In other
words, it's more accurate to say that the market closes lower before and after a holiday, not higher.
-- Thomas Bulkowski
Written and copyright © 2009-2013 by Thomas N. Bulkowski. All rights reserved. Famous last words: "What happens if you touch these two wires tog"
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