Average market behaviour in November

The following chart plots the average performance of the FTSE 100 Index during November since 1984.

Average month chart - November (2014)As can be seen, historically the market has increased, with a few ups and downs, throughout November, ending the month at the month high.

October 2014

The following chart shows the average performance of the market in October (1984-2013) and overlays the actual performance in October 2014.

Average month chart - October overlay October 2014 (2014)

 

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First trading day of November

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

The market has a tendency to be strong on the FTD of a month. And this effect has been even more pronounced in recent years.

Since 1984, the FTSE 100 Index has risen on average 0.17% on the November FTD. The index has had a positive return on this day in 67% of years since 1984.

Since 2000, the performance has been a little stronger on the November FTD, with an average return of 0.2% on the day, with positive returns seen in 79% of years.

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

First trading day of November (1984-2013) [2014]

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Last trading day of October

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

The LTDs of months used to be stronger than average, but in recent years they have been weak. This is quite different from the first trading days of months which strongly out-perform the average for all days, and where the effect has strengthened in recent years.

Since 1984 the market has on average risen 0.47% on the LTD of October, with positive returns in 70% of all years, which makes it easily the strongest LTD of any month in the year.

However, as can be seen in the chart, the behaviour of the October LTD has changed markedly over time. For the 19 years from 1984 the market only fell twice on the October LTD; but in the 11 years since 2003 the market has only risen significantly on this day in three years.

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

Last trading day of October (1984-2013) [2014]

 

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Lunar calendar and the stock market (update)

Today will see a full moon and a total lunar eclipse (best seen from the Pacific and neighbouring regions).

A previous post looked at the relationship between the lunar calendar and the stock market. The below updates the chart that appeared in that previous post.

Lunar eclipses and the FTSE 100 Index [2014]Since the previous post there have been three total lunar eclipses:

  1. 25 May 2013 – the timing of the eclipse coincided with the high point of the year for the FTSE 100; in the four weeks following the eclipse the index fell 10%.
  2. 18 Oct 2013 – the eclipse occurred in the middle of an upswing.
  3. 14 Apr 2014 – the eclipse marked the bottom of a short down trend; the market rose 5% in the following four weeks.
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First trading day of August

Tomorrow will be the first trading day (FTD) of August.

Since 1984, the FTSE 100 Index has an average return of 0.06% on the August FTD, which makes it the ninth strongest FTD of the year.

The following chart shows the returns for every August FTD since 1984.
First trading day of August (1984-2013) [2014]

 

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Last trading day of July

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

Since 1984 the index average return on the July LTD has been 0.16%, which makes it the fifth strongest month LTD of the year. The probability of a increase on the July LTD is 47%

The following chart shows the FTSE 100 Index returns for every July LTD since 1984.
Last trading day of July (1984-2013) [2014]

 

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First trading day of July

Tomorrow will be the first trading day (FTD) of July.

Since 1984, the FTSE 100 Index has an average return of 0.48% on the July FTD (16 times the average daily return on all days), which makes it the third strongest FTD of the year. Although, as can be seen in the chart, the market has suffered two large falls in the past five years on this day.

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

First trading day of July (1984-2013) [2014]

 

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Last trading day of June

Today is the last trading day (LTD) of June.

Since 1984 the index average return on the June LTD has been 0.18%, which makes it the third strongest month LTD of the year. The probability of a increase on the June LTD is 67%

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

Last trading day of June (1984-2013) [2014]

 

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FTSE 100/FTSE 250 monthly switching strategy

A previous article looked at a comparison of the monthly performance the FTSE 100 v FTSE 250 indices. In this article we will look at taking the results of that study to create a trading strategy.

Analysis of the historic data shows that although the FTSE 250 Index has greatly out-performed the FTSE 100 Index in the long-term (since 1986 the FTSE 100 has increased 367% compared to an increase of 1052% for the FTSE 250) there are certain months for which the large-cap index on average out-performs the mid-cap index. We will look at a strategy that exploits this feature.

The following reproduces the chart showing the monthly out-performance of the FTSE 100 over the FTSE 250 Indices. For example, in Januaries since 1986 the FTSE 100 has on average out-performed the FTSE 250 by -1.5 percentage points.

Monthly average out-performance of FTSE 100 over FTSE 250 [1986-2014]As can be seen, there are only two months, September and October, in which the FTSE 100 convincingly out-performs the FTSE 250.

The above results suggest a strategy of investing in the FTSE 250 for the year but switching into the FTSE 100 for just the two-month period September-October. In other words, the portfolio would be invested in the FTSE 250 from January to August, at the end of August it switches out of the FTSE 250 and into the FTSE 100 for two months, then back into the FTSE 250 until the end of August the following year.

The following chart shows the result of operating such a strategy from 2000. For comparison, the chart also includes the portfolio returns from continuous investments in the base FTSE 100 and FTSE 250.

FTSE100-FTSE 250 monthly switching strategy [2000-2014]

The result: the FTSE 100 portfolio would have grown -5%, the FTSE 250 risen +153%, and the FTSE 100/FTSE 250 monthly switching portfolio would have increased +237%. These figures do not include transaction costs, but these would not be significant as the strategy only requires trading twice a year.


See also

 

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FTSE 100 Index month end values 1984-2014

The following table shows the month-end and year-end values of the FTSE 100 Index.

NB. The FTSE 100 Index was launched on the first trading day of January 1984, but was given a starting value of 1000 assigned for the last trading day of 1983.

 

 

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