First 1-2 Days of May Positive for Stocks in Recent Years, But…

Buying the S&P500 on the last day of April and holding 1-2 days has produced a profit in each of the last 20 years. That’s a pretty impressive streak, but there’s one catch – it’s only worked since 1990. Here’s a look at the last thirty years…

Buying the S&P500 on the last day of April
04/30/10… ???
04/30/09… Higher S&P close one session later
04/30/08… Higher S&P close one session later
04/30/07… Higher S&P close one session later
04/28/06… Higher S&P close two sessions later
04/29/05… Higher S&P close one session later
04/30/04… Higher S&P close one session later
04/30/03… Higher S&P close two sessions later
04/30/02… Higher S&P close one session later
04/30/01… Higher S&P close one session later
04/28/00… Higher S&P close one session later
04/30/99… Higher S&P close one session later
04/30/98… Higher S&P close one session later
04/30/97… Higher S&P close two sessions later
04/30/96… Higher S&P close one session later
04/28/95… Higher S&P close two sessions later
04/29/94… Higher S&P close one session later
04/30/93… Higher S&P close one session later
04/30/92… Higher S&P close two sessions later
04/30/91… Higher S&P close one session later
04/30/90… Higher S&P close one session later
04/28/89… No higher close in next 1-2 sessions
04/29/88… Higher S&P close one session later
04/30/87… Higher S&P close two sessions later
04/30/86… No higher close in next 1-2 sessions
04/30/85… No higher close in next 1-2 sessions
04/30/84… Higher S&P close one session later
04/29/83… No higher close in next 1-2 sessions
04/30/82… Higher S&P close one session later
04/30/81… No higher close in next 1-2 sessions

In 25 out of the last 30 years, or 83% of the time, the S&P posted a subsequently higher close in the first 1-2 days of May. However, that’s not significantly better than the 66% random chance for a higher S&P close 1-2 days later in the same time frame. A check of the long-term equity curve for this pattern shows that from the early 50’s to the early 90’s there was no virtually no edge to this seasonal pattern of buying the last day of April. Only since 1990 has the market consistently rallied in this time frame, a sign that the positive trend is more of a recent tendency than a consistent edge.

Another reason I wouldn’t put too much emphasis on seasonals is the weak price pattern seen on the daily S&P futures chart. Yesterday the S&Ps posted an unfilled upside gap (low>previous day’s high), and today we’ve quickly traded down to fill that gap. When an upside gap is filled that fast, there’s typically a bit more downside in store. The last thirty occurrences in which the front-month S&P contract immediately filled an upside gap are listed in the table below. Note that in 27 out of 30 cases stretching back to 1997, or 90% of the time, the S&P posted a subsequently lower close (below the setup day’s close) within the next four sessions. That’s significantly above the S&P’s 70% at-any-time odds of posting a lower close within four days in the same period of time…

S&P Futures Fill an Upside Gap One Day Later
04/30/10… ???
04/21/10… Lower S&P close four sessions later
12/15/09… Lower S&P close two sessions later
01/29/09… Lower S&P close one session later
11/05/08… Lower S&P close one session later
09/22/08… Lower S&P close one session later
09/09/08… Lower S&P close four sessions later
08/29/08… Lower S&P close one session later
08/25/08… No lower close within four sessions
09/20/07… Lower S&P close two sessions later
07/05/07… Lower S&P close three sessions later
08/03/06… Lower S&P close one session later
06/20/05… Lower S&P close three sessions later
10/05/04… Lower S&P close two sessions later
03/18/04… Lower S&P close one session later
07/15/03… Lower S&P close one session later
10/18/02… Lower S&P close four sessions later
10/12/01… Lower S&P close one session later
04/06/01… No lower close within four sessions
11/28/00… Lower S&P close one session later
03/06/00… Lower S&P close one session later
02/09/00… Lower S&P close two sessions later
01/18/00… Lower S&P close two sessions later
01/11/00… Lower S&P close one session later
10/25/99… Lower S&P close one session later
09/28/99… Lower S&P close one session later
11/30/98… Lower S&P close three sessions later
10/13/98… No lower close within four sessions
09/24/98… Lower S&P close one session later
08/13/98… Lower S&P close one session later
07/17/97… Lower S&P close one session later

Unlike the seasonal pattern above, the equity curve for this pattern shows a consistent downside edge, indicating we’re likely to see a close below today’s settlement during the first half of next week.  Should seasonals give the market a lift on Monday, it would most likely represent a short-term sell.

Categories : Archived Intraday Commentary, Intraday Commentary

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