Martin Zweig's Market Timing

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Martin Zweig Market Timing: The ‘Hidden’ Holiday Market Opportunity

By Dr. Steve Sjuggerud, Advisory Panelist, Investment U
Tuesday, November 25, 2003: Issue #292

Stocks go up dramatically and somewhat inexplicably around holidays, says Martin Zweig’s market timing theory in his excellent book Winning on Wall Street.

According to an exhaustive study conducted by Zweig, “On the last trading day prior to the holiday, the market had an exceptional tendency to rise, no matter what holiday was involved.”

If you’re like me, two questions immediately come to mind. First just how “exceptional” is this rise in stock prices Martin Zweig is talking about? And second is there anything I can do to take advantage of this knowledge? Let’s tackle these questions in order

There’s Nothing “Random” About Martin Zweig’s Market Timing

The holidays with the most bullish tendencies are Labor Day and New Year’s Day. But, Thanksgiving presents its own unique wrinkle and its own unique opportunity as well.

Let’s look at Labor Day and New Year’s Day first. For the time period of Martin Zweig’s study (1952 to 1985 – the book was published in 1986), Zweig found that the day before Labor Day produced the biggest percentage gains (0.68%) for a single day-annualized this would be a gain of more than 180%. What’s more, in that 33-year span, the market was up 31 times and down only twice before Labor Day.

The trading day before New Year’s Day had the best percentage of winning days: in 33 years, it was up 31 times, even once, and down once.

Academics like to say the market goes on a “random walk.” In essence, there are no patterns, and it’s basically worthless to even try to find them. I wonder how these academic “experts” can possibly explain the results above.

Overall, Zweig looked at a total of 223 “pre-holiday” trading days. And he found that the market fell only 12% of the timean amazing result. In other words, he found that stock price trends around holidays are extraordinarily bullish.

A Consistent Rise in Price the Day Before – And the Day After – Thanksgiving

So what’s the wrinkle with our upcoming holiday, Thanksgiving? Thanksgiving is a strange holiday for the market, for the fact that it always falls on a Thursday. And for the fact that the market follows Thanksgiving with an abbreviated trading day.

Zweig found that stocks did well, both on the day before and on the day after Thanksgiving. The market rose 30 times the day after Thanksgiving and fell only twice – on par with the pre-holiday days of Labor Day and New Year’s Day. And definitely not “random.” The average return was 0.63% – which compares favorably with Labor Day’s highest single-day average return of 0.68%.

The day after Thanksgiving also had great results, down only 4 times in 33 instances, for an average gain that day of 0.38%. That is a total profit across the two days of over one percent.

So what can one do with this seemingly valuable information? Use it for market timing?

A simple thing Martin Zweig says is: “If you are going to buy stock anyhow, it would not be a bad idea to buy it a day before the holiday in order to increase your odds of getting off to a good start.”

“Yeah,” you might say, “but how about playing it for some action.”

You could do that. The big thing would be actually getting any bang for your buck.

You could buy a no-load mutual fund tomorrow and sell it Friday (since the price you get is determined at the day’s close, selling on Friday would give you Friday’s close). But is it worth it for maybe 1%?

A Unique Opportunity for Speculators

For the speculators out there, people who need more bang for the buck-or more leverage-one way to get it is through index options. A small investment can make a very large return. Depending on what you do, a 1% move in the stock market could translate into a 10% gain or substantially more on the options in just a few trading days. Close out your position near the close on Friday.

Ultimately, I’m not advocating trading this idea, but I’ve given you contact information in the Cribsheet below. The real important concept here is that, when presented with this evidence, it’s hard to call the market’s actions “random.” Good analysts like Martin Zweig can find market anomalies and capitalize on them.

Good investing,

Steve

Today’s Investment U Cribsheet

I updated Martin Zweig’s research to include 1986-2001. I found some interesting things right after the book came out in 1986, the strategy stopped working for a couple years. But since 1989, it’s been back on track. The average gain over the two days surrounding Thanksgiving since 1989 has been 0.63%. That’s pretty good close to Labor Day’s high numbers. Ten years out of the last 13 were winners, and the losing years were relatively small (-1.96%, -0.10%, and -0.65%).