It might seem arbitrary to take investing advice from old market adages, but there is a market strategy commonly mentioned ahead of the Jewish holidays Sell Rosh Hashana, Buy Yom Kippur. The beginning of the year, Rosh Hashana began on Sunday, Sept. 25 at sunset, according to the traditional Jewish calendar. Yom Kippur, or the Day of Atonement, began Tuesday at sundown and ends Wednesday at sundown.
The thesis is that people sell positions on Rosh Hashana, the first of the Days of Awe, to rid themselves of financial commitments and then return to the market after Yom Kippur, the Day of Atonement, according to Jeff Hirsch, editor-in-chief of the Stock Trader's Almanac. It is not coincidence that this coincides with the seasonal September October weakness. According to the Stock Trader's Almanac, the Dow Jones Industrial Average has fallen 29 out of 52 Rosh Hashana holiday periods with an average decline of 0.5%.
This year, sell Rosh Hashana worked like a charm until Monday and Tuesday, when the U.S. stocks posted the strongest start to a quarter since 1938 with back-to-back gains. The S&P 500 SPX, gained 3.7% from the close on Sept. 26 to close on Oct. 4, while the Dow Jones Industrial Average DJIA, advanced 3.6%, and the Nasdaq Composite COMP, rose 3.5%, according to Dow Jones Market Data.
Three indexes posted their worst skid in the first nine months of a year in two decades last week.
Hirsch warned last month that it might be a bit late this year for traders to follow the traditional market strategy to sell at Rosh Hashana, but saw a favorable prospect around buying at Yom Kippur.
In a follow-up phone interview with MarketWatch on Sept. 23, Hirsch stated that it is the seasonal movements and quarterly movements of large institutions that tend to make September the worst month for stocks and the week after the triple witching of futures and options, while October is a bear killer, as we say in the almanac. See Bear killers and crashes: What investors need to know about October s complicated stock market history.
Triple witching is a quarterly phenomenon referring to the simultaneous expiration of three different types of derivative contracts, stock-index futures, stock index options and stock options. It happens on the third Friday of the third month of each quarter.
A host of fears from inflation, a hawkish Fed, bellicose Russia, global upheaval, and U.S. midterm politics is making the usual seasonal and 4 year cycle carnage worse, Hirsch wrote.
I believe that we will see a Santa Claus rally towards the end of the fourth quarter, because you are going to see more signs that the economy is headed in the right direction, and inflation is falling, Bell told MarketWatch on Tuesday.
See: Why investors shouldn't expect a break from the stock market whiplash, says this strategist.
The Dow fell 1.1% on Wednesday morning. The S&P 500 lost 1.4% and the Nasdaq dropped nearly 2%.