Well, we are making progress towards determining whether there is any seasonality in regards to the best day of the month to buy a portfolio from the component stocks of the Nasdaq 100.
Perhaps the most important development was being given access to a survivor free database to use for testing.
Now it is time to establish a baseline. To establish the baseline, we buy the QQQQ on every close of the month and sell the positions 5 closes later. To be clear, we could hold the position for as many days as we want. I am using a six day hold as that was the original question presented to me.
To determine the baseline, all buys and sells were at the close and no commissions were included. The test started on 1/1/2001 and ended on 10/6/2010.
The Results:
There does appear to be some seasonality present, but it is not where I thought it would be. The graph shows the best day to buy the Qs is on the close of the 7th trading day of the month (assuming you hold the trade for 5 more closes).
In the test over the survivor-free database, the Avg. % Profit/Loss was 0.55% when buying 5 days before the month-end. If we examine day -5 (5 days before the month-end) on the chart above, we can see the Avg. % Profit/Loss is 0.28%. This suggests that there may be a slight edge, beyond what we would expect from just buying the index itself.
Of course this just leads to more questions, which I will attempt to answer in the future. Now that we have a baseline, we can move forward.
My prediction for a better result? Buy the worst performing stocks of the past ~20 days on the 6th trading day of the month and hold them for 5 more closes.
When it stops going down…LOL
Exactly!
Hey, tell me when it stops so I can buy it!