Just after midnight, Eastern time tonight, the earth will pass the Winter solstice, the point in its annual orbit around the sun where the northern hemisphere is pointed farthest away from the sun, causing the daytime hours to be the shortest relative to the night. This point also marks the point where henceforth, daylight in the northern hemisphere starts getting longer and longer and the darkness shorter and shorter.
Paul Macrae Montgomery is well known for his studies of the resonance of the markets with the solstice dates, both winter and summer. He believes the light/dark cycle has an effect on the psychology of investors, and therefore has measurable effects in the markets.
You can see that we’ve published several seasonal tendency trades today and over the last day or two, focusing on the December option expiration, triple witching day, and just Dec. 21 as a point from which stocks and stock indexes have rallied. This is another in that theme, but we’re using the 'winter solstice' event in the MIM as the rally focus point on the Nasdaq-100 index (NDX).
The Nasdaq gained a 'big' 1.9% on Thursday, closing at 2069.68 while crossing above its average value over the last 100 trading days (below which it had crossed on Monday.)
Q: How has the Nasdaq-100 index performed in the past starting one day before the date of the winter solstice?
A: According to the 24 previous occurrences of this event, EventEdge indicates that NDX has shown a somewhat bullish edge that peaks 18 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Thursday, Dec. 20, 2007) is Thursday, Jan. 17, 2008. NDX rallies in 88% of the cases (21 of 24) by an average of 6.6% relative to the close on the event date. The average of the three declines is 2.6%. The overall return of the 24 cases is 5.4%, which, based on the close of NDX on the event date (2069.68), provides a target price of 2181.44.
The T-score on the return of the 18-day holding period is a solid 4.3, and the mean return at the 90% confidence interval is ~3.0%.
If you'd like to see this event in our EventEdge analysis tool, click HYPERLINK "http://www.markethistory.com/content/events/chart.html?ticker=NDX&events=WinterSolstice1f" here. You can see the effect in the HYPERLINK "http://www.markethistory.com/content/events/chart.html?ticker=SPY&events=WinterSolstice1f" SPDR (SPY) ETF which tracks the S&P 500 index.
If you would like to see more details of this historical edge, go to www.markethistory.com
Gibbons Burke is editor of MarketHistory.com.
