Why Monday May Be the New Friday on Wall Street (2024)
Rocky White
·2 min read
The S&P 500 Index (SPX) has averaged a 0.29% return on Mondays in 2023. That is the best ever year for Mondays when looking at data since 1950. This is interesting given that Mondays are, historically, the worst day of the week for stocks, and the only day since 1950 to average a loss. This week I’m examining whether this is just an interesting anomaly or if it suggests a bullish or bearish case for stocks going forward.
The chart below shows the average three-month return for each day of the week from the beginning of the year. Monday sticks out because it’s the only day trending higher over the past few months, as well as the only day with a positive three-month return. Next, let’s look at how the SPX performed after times that Monday was the lone day of the week. According to the chart, it averaged a positive return over the past three months.
The table below shows dates where Monday was the only positive day of the week on average over the prior three months. I only listed the date if it was the first signal over the prior six months. The most recent signal was at the end of September. The S&P 500 was down 3.6% over the prior three months on the date of the signal.
Overall, the SPX tended to perform well after these 13 prior signals. The index averaged a return of 3.1% over the next three months, with 77% of the returns positive. That beats the typical average of 2.2% and 66% positive. The SPX outperforms a year later as well after these signals.
The bad news is that in the four weeks after the recent signal, the S&P 500 was down about 4%. There were four prior signals in which the index was down in the first month after a signal. In three of four instances, stocks fell further over the next 11 months.
According to the theory, if the market moves up and closes higher on a Friday, it will open higher during the first few hours of trading on the following Monday and vice versa if it closes lower. It was first reported by Frank Cross in a 1973 article published in the Financial Analysts Journal.
The Monday Effect is a theory in finance that the prevailing trends in the stock market on Friday will continue into Monday. In very simple terms, if the market is up at close on Friday, it'll continue to go up at the open on Monday, and vice versa. Some day traders rely on this theory to make trading decisions.
Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.
In the United States, Fridays on the eve of three-day weekends tend to be especially good. Due to generally positive feelings before a long holiday weekend, the stock markets tend to rise ahead of these observed holidays.
It usually results in a recurrent low or negative average return from Friday to Monday in the stock market. Some theories say the Monday effect has a lot to do with the tendency of companies to release bad news on a Friday, after markets close, which then depresses stock prices on the following Monday.
Traders who subscribe to this theory believe selling on Friday allows them to take advantage of this increase in stock price, therefore maximizing their profits. Additionally, selling on Friday can provide a sense of security over the weekend, when markets are closed and sudden news can affect stock prices come Monday.
Key weekend trading strategies include technical analysis, volatility tracking, and following news events that cause price movements. Benefits include flexibility to react to announcements in real-time, gap trading at market opens, and harnessing volatility.
So you must clear wash sales by Dec.31 to be able to claim any associated loss on that year's tax return. But don't think that once the new year begins that you can re-buy the asset within 30 days and not run afoul of the law.
The 3% rule states that you should never risk more than 3% of your whole trading capital on a single deal. In order to safeguard themselves against big losses, traders attempt to restrict exposures on a single deal.
There is no rule that says one should not trade in the first 15 minutes. It just became a rule of thumb because most of the time Price will go into a range pattern - up and down with no direction which will make it dangerous to trade.
Timing the stock market is difficult, but understanding when to trade stocks can help your portfolio. The best time of day to buy stocks is usually in the morning, shortly after the market opens. Mondays and Fridays tend to be good days to trade stocks, while the middle of the week is less volatile.
What Causes the Monday Effect? Proponents of the Monday effect provided several reasons why the stock market's action on Monday could mirror the Friday close. Short sellers often covered their positions on Fridays because the markets were closed over the weekends, leading to negative returns on Mondays.
So, what are the worst days to trade stocks (when you should sit on your hands)? Thursdays and Fridays are the worst days to trade stocks during the week. The worst trading days of the month for trading stocks are trading days number 13, 14, and 22, and the worst trading days of the year are 35, 121, 111, 193, and 56.
Introduction: My name is Greg Kuvalis, I am a witty, spotless, beautiful, charming, delightful, thankful, beautiful person who loves writing and wants to share my knowledge and understanding with you.
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