How to have a good day in the stock market

Seasonal and cyclical changes are embedded in life. The sun rises in the east and sets in the west. The moon waxes and wanes. The tide comes in and goes out without fail. The trees bud in the spring, leaves turn in the fall, and the following spring the cycle begins again.

But what about the stock market? Investor mood certainly changes, sometimes seemingly from one day to the next, and the stock market rises and falls with regularity. Are seasonal or cyclical forces at work here, too? Research by many pioneering market analysts, including Yale Hirsch, Norman Fosback, and Peter Eliades, strongly suggests the answer is yes. The following analysis of short-term time-based patterns in the Dow Jones Industrial Average (DJIA) also supports this idea. Let’s look at several time periods that have proven to generate consistently favorable stock market returns over the long term and then create a system that pulls them all together. 

The underlying theory
It’s one thing to identify a time period during which the stock market repeatedly tends to rise or fall. It’s another thing to make sense of why this might happen. Although an investor does not necessarily need to understand why a particular seasonal tendency works, when it comes to applying that tendency and investing hard-earned money, it’s much easier to pull the trigger when you can at least determine a possible rationale for the move.

For our purposes, the theory underlying the concept of seasonality in the stock market is simply that “money moves the market.” In other words, when investors feel strongly enough about buying stocks, then money comes into the market and exerts buying pressure. This demand then causes stock prices to rise, at least in the short term. So — again, in theory — if we could identify a period or periods when investors might be likely to move money into the stock market, we could expect the market to rise during that time.

As we will detail in a moment, periods around market holidays and at certain recurring periods of the month have historically proven to fill this bill. But before delving into the particulars, let’s first lay the groundwork for how we might ultimately use this information.