Friday, September 28, 2012

Do Stocks Turn on a Dime at the End of the Quarter?

There is a lot of discussion on how the end of a calendar quarter impacts stock prices.  Can you use history to determine how prices are going to move at the end of March, June, September, and December?

I used the SPDR S&P 500 (SPY) as a proxy for the market and looked at the performance for the last 10 years (40 quarters) ending June 30, 2012, using Yahoo! Finance.  My thesis was to determine whether prices gained or lost on the first day of the quarter, and additionally, whether the move was dependent on what happened the previous trading day.  That is, if the market went down on the last day of the quarter, was there a pendulum swing back up on the next day, or was there a continuation of the trend in the new quarter.

Results of the Analysis

What I found was that no matter what happened in the last day of the quarter, the SPY generally moved up on the first day of the new quarter. 

The SPY gained a total of 19.85 points for those 40 quarters, an average of just short of 50 cents per date.  The price of the SPY fluctuated from 73 to 140 during that period.   28 of the 40 (70%) first days were positive, and only 12 negative.

I tried to break it down to see if I could explain the down days as a function of the previous trading day, (the pendulum effect) but the results were inconclusive.
On days the market was down in the last day of the quarter, the market was up a total of 6.09 points, but when it was up, the market resumed going higher by 13.76 points.  I concluded it doesn’t matter much; the trend is generally up on the first day no matte what the market did on the last day.

There are no doubt many reason for this phenomena, possibly general enthusiasm for a new quarter,  new money flowing into the market, or something options related.  The why isn’t as important as the ability to predict the general trend.  It is not foolproof, but traders looking for an advantage often play the percentages, and 70% is a pretty good percentage.

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