How Easter affects trading in the stock market

In investment and trading there are always times when we should not operate. Moments in which the markets are open but it is better idea to be quiet and wait for new games.

What moments are those?

Well, of course, the holidays and previous to them.

These days we are in the midst of one of those important festive periods in Western societies: Holy Week or Easter as the Anglos call it.

In Spain it is well known that it is a week of holidays for schools and that from Thursday to Sunday almost everything is plated.

However, the financial markets remain open until Friday, especially the Forex that opens all that day. The actions, however, close on Thursday.

Considering that it is an important holiday period we would think that it is not a good idea to negotiate in the markets.

Stock market tradin during easter
The 2018 Easter was very bullish for the Spanish IBEX 35

However, if you are bullish, notice that this past week has been good enough for the stock market with strong gains on Wall Street and in Europe, then, of course, the strong correction of the last few weeks.

In fact, on Holy Thursday was a particularly good day, and curiously as it was a holiday I decided to stop operating the DAX early, when it was bullish.

Well, the result is that the DAX had a bullish day of almost 200 points.

In this case the play did not go well, as you see.

And that they say that it is not good to operate on holidays.

On the other hand, in some other account I had some open Forex positions.

As I said before, the Forex market is open even on Good Friday.

 

With this, the tendency to negotiate even this day is high, as was my case.

What happened is that the market has dried up, as expected, and the spreads in most of the Forex pairs went up a lot, so I decided to close all the trades, because it did not make sense to continue with those conditions.

Still on Thursday there was some volatility, but on Friday it would be best to stop trading, because as we see in the graph volatility almost disappears and with the spreads going up more than 100% it is best to stop thinking about the markets.

So you see, in Holy Week, particularly on Good Friday, better forget to operate any market, even if it remains open, even if it is Forex.

However, on Holy Thursday, it turned out to be a very negotiable market, both in shares such as Forex or even cryptocurrencies.

Buy or sell in trading at Easter?

In this regard, several studies based on the results of recent years have been published.

For example, in a Forbes article they tell us about one of them.

In the same comment a very interesting fact: back in 2012 of the 19 occasions that the market was bullish from the beginning of the year until that week, only 2 ended below that value, with 17 times in which the market continued going up what was left of the year.

An interesting fact without a doubt, although nothing surprising given the bullish effect that the stock market has, especially the American one, in the long-term.

But not only that, but also, on those occasions, the average profit until the end of the year was 9.8%, an even better data.

This year, however, we are not “lucky”, because the market was trading below the beginning of the year this Easter, so we do not have that statistics in our favour.

In the case where we are, with an S & P500 below its value on January 1 of this year, we would have to go looking for the opposite data.

Those tell us that in the years it is in which the market is trading negative at this point in the year, the rest of the year achieved an average positive return of 0.08%, almost negligible; and that it ended positive 55% of the time at the end of the year.

With these last numbers we could say that we are facing a “fifty-fifty” of the stock market ending positive or negative at the end of the year.

Short-term trading in the SP500 during Easter

If we go more to the short term, trying to find some pattern for more aggressive trading, they tell us other interesting facts.

For example, studying the 3 days before Good Friday and the three following days, some interesting conclusions are reached.

The study was separated into two parts: one from 1950 to 1989 and the other from 1990 to 2017.

Average return of the stock market from 1950 to 2017 in the days before and after Easter.

In percentage (*)1950 to 19891990 to 2017
Tuesday0.080.28
Wednesday0.24-0.2
Thursday0.250.41
Monday-0.18-0.08
Tuesday0.10.32
Wednesday0.120.02

* Approximate data. Look at the coxadvisory article.

In this case, we have the average return of the market was more than 0.2 and 0.4% respectively for Thursdays, hence we should not be surprised by the good performance of yesterday’s stock market.

On the other hand, the Mondays after Easter have turned out to be disastrous days, with an average return of almost -0.2 and 0.1%.

What is worse, and clarifies the matter more, only 37% of the Mondays after Easter have been positive on Wall Street.

Well, and I wanted to start the Easter Monday in a bullish way, trying to continue the trend of the short term with this mini-bounce of the markets.

What to do now?

Well, this 37%, or 63% of negative days does not mean that we are going to lose with total security, but that the probability of winning on Monday is, perhaps, not too high. However, if we have a trading plan and our indicators or systems tell us, we should not get carried away by that kind of thing.

This affects less to systems that look for operations that last a week or more.

However, if your operation is intraday, there things change.

With that type effect “we continue on vacation on Monday”, it seems not very smart to try to operate the long side of the market. But, again, I repeat the same as before: if you have a system and your “indicator” tells you that you have to buy, then to buy.

Because if at the end you do not decide to stay out of business and not buy, and you see that the market ends up raising 10, 20 or 40 points (in the SP500 that’s enough, especially in futures or CFDs), then you’re pulling your hair. This is something that nobody likes, of course.

So, with this study that tells us not to go bullish until Tuesday, what should we do?

Well, the truth, I leave it to each one’s criteria.

I, particularly, possibly among bullish, depending on how the day goes.

There is nothing safe in the stock market, and statistics are there to break them, of course.

But I also tell you: it does not hurt to know them.

What I can tell you almost certainly is that a strong rebound in the stock markets is very likely to happen, either next week, or the next, or the other.

So at that time we must prepare to see the DAX raise about 1,000 points at least for a few weeks, which as no, try to take advantage.

Greetings and good trading.

Original article: “El efecto de la Semana Santa en la Bolsa y el Forex”