by MarketSci
A topic recently on me noggin has been day-of-month seasonality (read more, more, and more). Using a simple walk-forward test to minimize hindsight bias, I showed that trading the days of the month that have been strong historically has consistently led to much stronger returns in the future. That’s as true today as it was in 1950.
Below is the DOM seasonality calendar for next month, broken out by quartiles (read why), with quartile 1 indicating the strongest days and quartile 4 the weakest.
Results in April were (beyond) abysmal, but real-time results since I began sharing the calendar in October have been mostly inline with the historical test.
The S&P 500 has averaged 0.09% (24% annualized) on the best half of days versus 0.05% (14% annualized) on the worst half.
Quartile 4 days (the worst of days) have been particularly bad, with an average return of -0.17% (-35% annualized).
As I stressed when I introduced the concept, day-of-month seasonality never justifies a trade all by itself, but I do think it deserves to be one of many tools in the trader’s toolbox.
Happy Trading,
ms
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