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Do Thanksgivings Bring Cheers, or Tears?

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By MakeItSeven
November 20, 2007

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To the stock market, of course.  We all know what Thanksgivings bring to our RL already: big fat turkeys.  Yeah.

According to Norman Fosback in the old classic "Stock Market Logic", the two days before a holiday tend to be positive for the stock market as observed in the data between 1928-1975.  The rationale for that phenomenon is that short sellers want to close their short positions before going on vacation.  This explanation is reinforced by the fact that out of the three most significant pre-holiday gains: Independence Day, Labor Day and New Year's day, two are in the summer when people usually take long vacation.

As far as Thanksgivings go, the only thing they bring is a big yawn according to Fosback,  The two days before Thanksgivings only brought accumulative gains of 4.3% and 1.1% in 48 years.  This was compared to the accumulative gains of 13.3% and 37.3% for Independence Day; 16.8% and 33.7% for Labor day; and 31.1% and 19.6% for New Year's day. 

But all those info, albeit useful, were so 20th century.   Heck, that was even before we had PCs, Internet, and online trading.  Before the Motley Fool's web site was created even.   Imagine something to be that old !!

And it was only 4 years after the NASDAQ was created so all the data was based on the Dow Jones Industrial.  Seriously, looking for signs of speculation activities in the Dow Jones stocks is like looking for a way to win the lottery by buying bread at the corner supermarket.   How many people want to make a living shorting all those dowdy, minimum-excitement-guaranteed DJ stocks?

The real ups-and-downs, cheers-and-tears can only be measured with the speculation galore of the NASDAQ.   So, what did Thanksgiving bring to the NASDAQ in the last few years?

My historical data on the NASDAQ only go back to 1999 for a total of 8 Thanksgivings.  Out of those 8 years, I took out the two years 2000 and 2001 since they are unusual years: 2000 was when the baby was being thrown out with the bath water, and post 9/11 2001 was when the stock market was lifted to the sky by an unseen angel just to be tossed down from the clouds in 2002.

So, the 6 years (1999, 2002, 2003, 2004, 2005, 2006) brought total gains of:

6.04%  Monday

-3.62% Tuesday 

7.47% Wednesday

So, the three days before Thanksgivings brought an average of 1.65 gain per year, not bad.

But, as Arnold says: "I'll be back".  What happens when all those nasty shortsellers come back?  Do they jump in right away or spend sometimes looking for juicy preys first?

For those 6 years, I looked for the short-term post-Thanksgiving bottoms in the market to see if the market gave back the pre-holiday gains.  The number of days it took to reach the short-term bottom varies and are in parentheses:

1999 : -2.47 (3 days)

2002 : -8.12 (7 days) This can be considered an outlier since 2002 was pretty bad. 

2003 : -2.49 (9 days)

2004 : -.27 (2 days)  No post-holiday dip but then the pre-holiday gain was negligible also.

2005 : -1.21 (3 days)

2006 : -2.44 (2 days) 

So, the average Post-Thanksgiving loss is 2.8%.  Probably everybody could see that I cheated by using hindsights to look for the bottoms here.  Without the hindsight to know how far and how long the market would drop, I suppose the average guess would be about 50% correct or roughly 1.4% drop in the market after Thanksgiving.

This is just for fun, of course.  Real statistics should take more than 6 samples. 

Have a great holiday.