Seasonality Map for March, 2011
This is a monthly feature at the MarketSci Blog.
Below is a map of potentially strong/weak days for the US stock market in March based on historical seasonality patterns. Read more after the image.
Scorecard: since launching in April 2010, the monthly seasonality map has called the closing direction of the S&P 500 correct 50% of the time with winning predictions 1.6x losing ones (solidly outperforming 56%/0.9x for buy & hold).
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About the Monthly Seasonality Map
One of the unexpected side effects of keeping this blog is I’ve become a proponent of seasonality (i.e. bullish/bearish biases around certain times of the month, year, etc). This seasonality map forces me to tie my seasonality studies together every month and is even being used in our own proprietary strategies (read how).
The studies included are: (a) the turn of the month, (b) the first and last day of the month, (c) the day-after options expiration, (d) the monthly W, (e) individual holidays, (f) scheduled Fed meetings, and (g) strong/weak calendar months.
To be clear, I do NOT think that seasonality alone is sufficient to justify a trade; however, all of the seasonality plays included in this report have been consistent enough that I do think they should be one of many tools in the trader’s toolbox.
Some observations have been stronger than others, so I’ve rated each from -100% (most bearish) to +100% (most bullish). Very low ratings (+/- 25%) indicate the play has been inconsistent and should be viewed with an extra skeptical eye.
This is a constantly evolving work and reader input is always appreciated.
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New Large vs Small-Cap Seasonality Map
This year I’ve also begun issuing a monthly large vs small-cap seasonality map (click to zoom). Positive (negative) values indicate large cap (small cap) relative strength.
Note that these seasonality biases only exist after adjusting for differences in volatility between large caps and small caps (AKA “market neutral” or “beta neutral”) so they are only relevant to either (a) pairs trading, or (b) choosing between large and small caps after an investor already had a view on the market as a whole (read more).
The large vs small-cap studies included on this map are: calendar month, intra-month, intra-week and individual holiday seasonality.
Happy Trading,
ms
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Filed under: Monthly Seasonality Map | 2 Comments
I tested the DJIA 30years back. Buying at the close on the last day of Feb and selling at the close of March 1. Profit factor =0.79 %profitable =46.4% and W/L ratio=0.91
Don’t see how you can say on your seasonality map that Feb 1 is a 100% positive day.
I would call it even at best.
RE to Steven: the prediction isn’t based on 03/01, it’s based on the first of the month (regardless of month). If there isn’t a compelling reason to think that the first of March is different than the first of any other month, then all you’ve done by looking at 03/01 in isolation is reduce the number of observations (and reduced the robustness of the analysis).
I look at the turn of the year (beginning of January) as a unique event and would be willing to consider the turn of the quarter as a unique event (although that one in particular doesn’t IMO show any significant difference in performance).
michael