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In my book “Seasonal Stock Market Trends” I devote an entire section to “Trading Days of the Month.”  This article borrows from and updates some of the information in that section.

Defining “Trading Days of the Month” or TDM

A “trading day” is simply a day when the U.S. stock market is open for business.  Most months have between 19 and 22 “trading days”.  For counting purposes I refer to the first trading day of the month as TDM 1, the next as TDM 2 and so on and so forth.

As you will see, it can also be useful to count backwards.  In other words, the last trading days of the month is referred to as TDM -1, the second to last day as TDM -2 and so on.

Days of the Month to Avoid

Based on a test using the Dow Jones Industrials Average starting on 12/31/1933 the trading days best avoided are:

*TDM 5 and 6

*TDM 13, 14, 15 and 16

*TDM -7, -6, -5

*Note that there is often overlap between TDMs 13 through 16 and TDMs -5, -6 and -7.  In other words for a given month TDM 16 and TDM -6 may be the same day.  This simply counts as one day to be avoided.

Results

Now I will grant you that exiting and re-entering the market twice a month seems like a lot of bother.  Still, the results are worth considering.  Figure 1 displays the, ahem, growth of $1,000 invested in the Dow Jones Industrials Average only on the TDMs listed above (i.e., #’s 5, 6, 13, 14, 15, 16, -7, -6,-5) since 12/31/1933.Figure 1 – Growth of $1,000 invested in Dow Jones Industrials Average ONLY on TDM #’s 5, 6, 13, 14, 15, 16, -7, -6,-5); since 12/31/1933

Anyone notice a trend?  For the record, since 1933 the original $1,000 declined in value -91% to just $87.  Before you start yelling “curve-fitting” please note in Figure 1 that the downward trend has been very persistent for many decades.  In fact 87% of all 10-year rolling returns have showed a loss.

So what does one gain by skipping these “unfavorable” days of the month?

Figure 2 displays the growth of $1,000 using buy-and-hold (red line) versus holding the Dow only during all of the “other” (i.e., NOT unfavorable) trading days of the month (blue line).Figure 2 – Growth of $1,000 invested Dow Jones Industrials on all TDM EXCEPT #’s 5, 6, 13, 14, 15, 16, -7, -6,-5 (blue line) versus buy-and-hold (red line); since 12/31/1933

For the record, since 12/31/1933:

*$1,000 invested during all “unfavorable” days declined to $87 (-91%)

*$1,000 invested using buy-and-hold grew to $179,562 (+17,856%)

*$1,000 invested during all “unfavorable” days declined to $2,062,769 (+206,177%)

The difference between +206,177% and -91% is what we “quantitative analyst types” refer to as “statistically significant.”

(See also An Interesting Article I Think You Should Read)

Jay Kaeppel