Holiday Trading

Index futures are looking a bit weak this morning, which is unusual on the day before an exchange holiday. There is an upward drift to these days and volatility tends to be lower. Perhaps there is a heightened concern as we head into a long weekend due to a religious holiday.

Whatever the reason, when the S&P 500 stock futures have shown even minor weakness on a pre-holiday, it has typically persisted during the rest of the session. What's notable, though, is that weakness has flipped almost 180 degrees during this bull market. Since 2010, of the 10 times the futures dipped ahead of a holiday, stocks rebounded during the regular session 8 times.

The table below shows all gaps down of more than -0.25% in S&P 500 futures on the day prior to an exchange holiday. Only instances when the S&P was trading above its 200-day average as of the prior day's close are included.

Overall, returns got progressively stronger during the next 1-3 weeks. Three weeks later (not shown), the S&P was higher 18 out of 20 times and the two losses were for only -0.2% and -0.3%. The biggest "oops" trades were in May 2012 when the futures lost an additional 4.5% before rebounding, and July 2009 when they lost almost as much over the next 3 days before erasing the losses.

Stocks have had a tendency to see weakness the day after the Good Friday holiday (the futures lost ground 21 out of 34 years), then rebound in the days after that (they rallied 23 times during the next week), so we're getting closer to a window where both seasonality, sentiment and price patterns are turning more positive on a short-term basis.