How good is the first trading day of the month? According to this analysis (hat tip: MarketWatch), 94 per cent of the Standard & Poor's 500 Index's gains in 2010 stemmed simply from advances on the first trading day of each month.
"Specifically, SPX gained 142.5 points in 2010, and if one had merely captured the gains on the first trading day of each month, he would have made 133.3 SPX points, or 93.5 per cent of the total yearly gains," writes Lawrence McMillan, president of McMillan Analysis Corp.
He goes on to look at the past 20 years and concludes: "From Dec. 31, 1990, to Dec. 31, 2010, SPX has gained 927.4 points. Of that gain, 641 points (or 69.1 per cent) came on the first trading day of the month."
He also points out that in 2000 and 2001, trading on the first day of the month made a profit (highlighted in yellow on the table below) while the S&P 500 was was actually down for the year.
Why would this be the case? Mr. McMillan suggests that month-end window-dressing by institutional traders and new money flowing into funds at the beginning of a month, due to payroll investment plans and other monthly contributions, are the main reasons.
"What does this mean?" he adds. "Think of the time and effort that could be saved. Work one day per month, and turn off the lights for the rest of the time."