History tells us to sell this Thursday (September 13, 2007) due to the Rosh Hashanah holiday. It then tells us to buy next Friday (September 21, 2007) when Yom Kippur begins.

Before you follow this advice blindly; I would like to explain that I am having some fun to open the week with some statistics from the Stock Trader’s Almanac. I don’t necessarily buy and sell based on these holiday patterns (and you shouldn’t either) but I like to note and highlight them on the blog from time to time.

The belief is that many traders and investors sell during busy religious observances and focus on their families and faith instead. With this in mind, the Almanac notes that positions are closed out, volume fades and a buying vacuum is created.

What makes these holidays special is the fact that they fall in September or October each year, two very volatile and opportune months. September is the biggest losing month for the DOW and S&P 500 since 1950 (the NASDAQ as well, since 1971). The three have a cumulative total loss of (57.7%), (37.6%) and (34.7%) respectively. The DOW has had 20 up-months and 36 down-months while the S&P 500 has had 23 up-months and 33 down-months during the period from 1950 to 2006. October has given the three indexes a total cumulative gain of 30.4%, 48.9% and 18.5% respectively. This helps to explain the success of the religious buys and sells.

September tends to open strong but then closes weak due to end-of-quarter mutual fund portfolio restructuring and many investors getting back into the swing of things after summer vacations, kids back in school and new business years (fiscal).

Religious Holiday Data:
The Dow Jones Industrial Index has been down 20 of the past 35 years from Rosh Hashanah to Yom Kippur and up 24 of the 35 years from Yom Kippur to Passover. The average loss starting on Rosh Hashanah is (0.4%) and the average gain is 7.1% after Yom Kippur. Seven of the past eight years have given us negative readings starting on Rosh Hashanah while 14 of the past 16 years have shown positive gains from Yom Kippur to Passover. The DOW has gained an average of 9.1% over the past 16 years from Yom Kippur to Passover with the 1998-99 period topping the list at 25.4%.

I leave you with this quote and the current chart of the Nasdaq:

“Major Bottoms are usually made when analysts cut their earnings estimates and companies report earnings which are below expectations.”

– Edward Babbitt, Jr.

“The financial world encourages investments in the November through April period more so than in the May through October period.” according to Elizabeth Thompson’s article Gone away for the Summer? It’s Time to Come Back.

Many of you are familiar with the statement:
“Sell in May and go away”

Mrs. Thompson goes on to say that January is the month that employees sign up for 401(k) plans while IRA’s have an April deadline which requires investors to place more money in their stock related retirement funds. This type of setup brings an influx of money to the table during the beginning of each year and naturally pushed prices higher before the flat summer months when they typically correct.

September is historically one of the worst performing months in American stock market history but it can also present an ideal opportunity to place positions on stocks that are showing excellent relative strength. Typically, these stocks go on to be market leaders and breakout after Halloween and into the New Year. Some say that the market has a very distinct seasonal pattern, one that was popularized as the “Halloween Indicator”, directly relating to the quote above.

November through February are some of the best performing months according to the Stock Trader’s Almanac but if you wait to place positions at the end of this time period, you may be buying extended leaders.

Another historical study suggests that the market will continue to trade the way it has traded for the first five months of the year. If this scenario holds true in 2007, we should trade higher to close the year.

With Labor Day upon us, many across the US will be greeted with the end of the summer and the final days of vacation for most major institutional traders, managers and players.

I now leave you with some data from the Stock Trader’s Almanac:
If an investor invested $10,000 in the DJIA on November 1 and sold on April 30 every year from 1950 to 2004, they would have earned $492,060. If this same investor did the opposite and had bought on May 1 and sold on October 31 from 1950 to 2004, a $318 loss would have resulted. That is an amazing stat, one that is difficult to fathom. This trend extends outside of the American stock market as an article from December 2002 of the American Economic Review says that such a statistical pattern existed in the U.K. stock market as far back as 1694 and still exists today.

Enjoy the long Labor Day holiday!