Happy ‘Holiday Days’ in Action

  • SumoMe

The good news is that the stock market has demonstrated a persistent historical tendency to perform well around stock market holidays (as I detailed here).  The bad news is that we simply do not have enough holidays (can I get an “Amen”?) Well, at least not enough to justify a standalone holiday trading strategy.

Or do we?

(See also Why You Should Be Rooting for a Bullish January)

One Approach to Holiday Trading

For this test we will employ the following rules:

*If today is within 3 trading days before or 3 trading days after a stock market holiday we will hold ticker UMPIX (Profunds Ultra MidCap – which tracks the daily change for the S&P 400 MidCap Index times 2).

*For all other trading days we will hold cash and will assume we earn an annualized rate of interest of 1%.

*We will start our test on 2/7/2000, which was the first day of trading for ticker UMPIX

The growth of $1,000 invested using the rules above appears in Figure 1 along with the growth of $1,000 invested in the Dow Jones Industrials average on a buy-and-hold basis during the same time.1Figure 1 – Growth of $1,000 invested in ticker UMPIX using Holiday Days Trading Rules (blue line) versus buying and holding the Dow Jones Industrials Average (red line); 2/7/00-1/24/17

The annual returns for this method versus Dow buy-and-hold appear in Figure 2.

2

Figure 2 – Annual Results of Holiday Days Trading Method versus Dow Buy/Hold

*Figures for Year 2000 in  Figure 2 start on 2/7/2000

For the record:

*The system is in UMPIX only 20.75% of all trading days and in cash 79.25% of all trading days.

*The average annual return for System = +14.6%

*The average annual return for Dow Buy-and-Hold = +4.7%

*The maximum System drawdown was -34.3%

*The maximum Dow Buy/Hold drawdown was -53.8%

(See also Please Don’t Buy That S&P 500 Index Fund)

Summary

So is this simple approach to holiday trading a viable standalone strategy?  I will leave you to draw your own conclusions.

Jay Kaeppel

One thought on “Happy ‘Holiday Days’ in Action

  1. Good information, very well explained and illustrated the approach to holiday trading.
    But one should not forget to enjoy the holidays.

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