Is there a directional bias for the month of December when S&P 500 is up for the year at the end of November?
December Tends To Be An Up Month, If The
Market Is Up The Preceding 11 Months
One of the things that we are constantly driven
to do at
TradingMarkets is to publish original research that can provide an edge for
traders. And we believe that the most useful information for traders is
information that is quantified and statistically backed.
The Phenomena
During the month of November, the
S&P 500 has broken to new highs. With the end of the month just a few days away,
we decided to ask this question:
Is there a directional bias for the month of
December when S&P 500 is up for the year at the end of November?
We looked all of our available data on the S&P
500 which goes back 42-years to 1963. Over that period we counted the number
number of years that were up through November and looked at how strong December
was in those instances.
The Results
Our findings are interesting and potentially
valuable to active traders and investors. There has
been a strong directional bias for December when the S&P 500 was up into the end
of November. Let’s break this apart and walk through process that led us to the
conclusion.
We found out that 27 of the 42 years we tested
were up through November. For those 27 years, 78% (21 out 27) of the Decembers wound up closing
higher by December 31. And 2.01% was the average gain for those up Decembers.
Clearly, there would been an edge if you bought stocks during Decembers that
were preceded by a market that was higher for the year at the of November.
It’s good to keep in mind that, if you were unaware of this research, your edge
would have been diminished. The average gain for all 42 Decembers during the
entire test period was 1.54%. While there was an upward bias for Decembers
overall, the performance of Decembers in which the S&P 500 was up by the end of
the November, was significantly better.
Summary and Conclusion
While we do not advise that anyone trade on the
basis of this information alone, this research from TradingMarkets is valuable
when it is combined with other trading strategies or market indicators that you
may already be using. During years in which the S&P 500 is higher by the end of
November, you might consider increasing your position size when you have a
signal to go long on individual stocks or stock indices. And for shorts, you
might consider being for selective.
That said, let’s to a quick look at this year.
In mid-October the S&P 500 bottomed
and has climbed steadily, establishing a new closing high of 1248.27
on November 18. Since then it has continued strongly higher. While market could
easily pullback at any time, the recent action strongly suggests at the end of
November, the S&P 500 will close for higher for year. If that happens, then our
research at TradingMarkets indicates that you may have edge on the long side in
December.