Last trading day of October

Next Monday will be the last trading day (LTD) of October.

Historically, the last trading day of October has been the strongest LTD of any month in the year. Since 1984 the market has on average risen 0.46% on the LTD of October, with positive returns in 69% of all years.

The following chart shows the FTSE 100 Index returns for every October LTD since 1984.

FTSE 100 last trading day of October [1984-2015]

As can be seen on the chart the market only fell twice on the October LTD in the 19 years from 1984 to 2002. One possible reason for this may have been that November is the start of the strong six month period of the year (this is part of the Sell in May effect), and investors could have been buying equities at this time in anticipation of that.

However, in recent years this pattern of behaviour has changed. Quite dramatically so – in the last seven years the market has only risen once on the October LTD. Last year (2015) the FTSE 100 Index was down 0.5% on the last trading day of October.

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FTSE 100 and FTSE 250 Quarterly Review – June 2016

After market close on 1 June 2016 FTSE Russell confirmed the following changes to the FTSE 100 and FTSE 250 indices. The changes will be implemented at the close Friday, 17 June 2016 and take effect from the start of trading on Monday, 20 June 2016.

FTSE 100

Joining: Hikma Pharmaceuticals [HIK]

Leaving: Inmarsat [ISAT]

FTSE 250

Joining: Ascential [ASCL], CMC Markets [CMCX], Countryside Properties [CSP], CYBG [CYBG], Hill & Smith Hldgs [HILS], Metro Bank [MTRO], Smurfit Kappa Group [SKG]

Leaving: Highbridge Multi-Strategy Fund [HMSF], Interserve [IRV], Jimmy Choo [CHOO], Lookers [LOOK], Melrose Industries [MRO], Northgate [NTG], Ophir Energy [OPHR]

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FTSE 100 and FTSE 250 Quarterly Review – March 2016

After market close on 2 March 2016 FTSE Russell confirmed the following changes to the FTSE 100 and FTSE 250 indices. The changes will be implemented at the close Friday, 18 March 2016 and take effect from the start of trading on Monday, 21 March 2016.

FTSE 100

Joining: Informa [INF], Mediclinic International [MDC], Morrison (Wm) Supermarkets [MRW] and Paddy Power Betfair [PPB]

Leaving: Aberdeen Asset Management [ADN], Hikma Pharmaceuticals [HIK], Smiths Group [SMIN] and Sports Direct International [SPD]

FTSE 250

Joining: Kaz Minerals [KAZ], McCarthy & Stone [MCS], Paysafe Group [PAYS], Softcat [SCT]

Leaving: 888 Holdings [888], Enterprise Inns [ETI], Nostrum Oil & Gas [NOG], Poundland Group [PLND]

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FTSE 100 daily returns heatmap

This updates a previous article with the latest figures for the average daily change and positive daily returns of the FTSE 100 Index.

The table formatting and analysis is largely as before; except the charts now use a smoother gradient of colours to indicate number magnitude.

Average daily returns

FTSE 100 average daily returns heat map [2015]

 Positive daily returns

FTSE 100 positive daily returns [2015]


Other daily return heatmaps.

 

 

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First trading day of February

Next Monday will be the first trading day (FTD) of February.

Since 1984, the FTSE 100 Index has risen on average 0.56% on the first trading day of February. The index has had a positive return on this day in 58% of years since 1984.

Since 2000, the performance has been even stronger on the February FTD, with an average return of 0.80% on the day, and with positive returns seen in 75% of years (making it the second strongest month FTD of the year).

The following chart shows the returns for every February FTD since 1984.

First trading day of February (1984-2015)

 

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Last trading day of January

Tomorrow will be the last trading day (LTD) of January.

Since 1984 the market has on average risen 0.14% on the LTD of January, with positive returns in 58% of all years (although since 2000 this has fallen to just 31%).

The following chart shows the FTSE 100 Index returns for every January LTD since 1984.

Last trading day of January (1984-2015)

 

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Do the first five days predict the full year?

The January Effect refers to the tendency of small cap stocks to out-perform large-cap stocks in the month of January. However, the term January Effect is used rather loosely to also refer to stocks generally being strong in the first month of the year, and also to how the direction of the market in January forecasts the market direction of the whole year (this latter effect is also termed the January Barometer). [A previous article explained the multiple January Effects in greater detail.]

Here, we are going to look at a variant of the January Barometer to see if the first five days of the year predict the return for the whole year.

First, we will call this variant of the January Barometer: January Barometer (5D).

The bald figures don’t look encouraging: in the 46 years since 1970, the January Barometer (5D) applied to the FTSE All-Share Index has been right in 26 years (57%). In other words in just over half the years since 1970 the first five days of the year have accurately forecast the full year.

But let’s look at this in more detail and see if we can tease anything out of the figures

The following is a scatter chart that plots the return on the FTSE All-Share Index for the first five days of a year against the return for the full year, for the period 1970-2015.

FTSE All-Share Index first 5-days v full year return [1970-2015]

There is a positive correlation here (given by the positive sloping trend line), however the measure of correlation (R2) is very low.

Summary: the chart shows there is a very low level of correlation between first five-day returns and returns for the full year but it is far from being significant.

However, strictly, the January Barometer only says the direction (i.e. positive or negative returns) can be forecast, not the size of returns. In which case the following chart may be more useful. This plots a binary value for each year:

  • 1: if the sign on the full year return was the same as the sign for the return for the first five-days (i.e. either both positive returns or negative returns)
  • -1: if the sign on the full year return was different to the sign for the return for the first five-days

FTSE All-Share Index first 5-days predicts full year [1970-2015]

In this chart we can see the roughly even split between years when the January Barometer (5D) works and those years when it doesn’t. However, the distribution of years when it works is interesting, as there does appear to be a certain clustering of years when the effect works and when it doesn’t.

For example, in the last 20 years the January Barometer (5D) has been accurate 14 times (a hit rate of 70%). And since 2004 there is this rather odd pattern of not working every fourth year.

US presidential elections

US presidential elections also have a four-year cycle. On the chart presidential years are marked with orange bars.

It can be seen that since 2004 the January Barometer (5D) has worked every year except in years before presidential elections.

And, over the longer term, since 1970 the January Barometer (5D) has only failed in three presidential elections (a success rate of 73%).

The outlook for 2016

Generally, the January Barometer (5D) has a low success rate. However, the effect has been more significant in recent years; plus it has a higher significance in US presidential election years (which 2016 is). In 2016 the market was down in the first five days of the year, and so the January Barometer (5D) would forecast a down year with a 73% probability.

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Worst start to the year ever for the FTSE 100

The following chart plots the returns for the FTSE 100 Index over the first five-day trading period of the year.

FTSE 100 Index over first 5 days of year [1985-2016]

As can be seen, the -5.3% return over the first five days of 2016 has been the worst start ever to the year for the FTSE 100 Index since it was formed in 1984.

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So, was there a Santa Rally in 2015?

A previous article looked at whether the Santa Rally exists in the UK stock market.

To recap, below is a chart from that article.

Santa Rally [2015] 05

This chart plots the cumulative average daily returns for the FTSE 100 Index for the month of December for the period 1984-2014.

The conclusion of the article was that a Santa Rally can be observed most years, and that the rally usually starts on the 10th trading day of December.

So, what happened in 2015?

The following chart plots the performance of the FTSE 100 Index in December 2015. (NB. The X-axis shows the trading - not calendar - days of December.)

FTSE 100 December 2014 and 2015

As can be seen, the Index fell fairly steadily for the first ten days of the month; a decline of 7.6% was seen over these ten days. On the 11th day the market rallied, and climbed 7.5% over the following nine days; before weakening slightly on the final two trading days of the year.

The 6.3% rally from the tenth trading day to the final day of the year can be considered the Santa Rally for 2015.

For comparison, the Santa Rally for 2014 is also shown. In this case, the Santa Rally started a day later (on the 11th trading day) of December. In 2014 the Santa Rally returned 6.3%.

So, December can be split into two periods: the “Where’s Santa?” period of the first ten trading days, when people ask if Santa is coming to the market that year, and then the period after the tenth trading day when a Santa Rally is often seen.


Other articles on the Santa Rally.

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