Seasonally, Dow has had good Monday during the expiration week in October. The blog of Stock Trader’s Almanac, also noted that Dow’s advance on the Monday before expiration – October 15th – was second consecutive Monday gain after a string or losses – 16 of previous 17 Mondays.
However, the Monday after the expiration week has been even better for Dow. The day after the third Friday in October, Dow Jones Industrial Average has been up for 15 straight years. Since 1992, it has been up 17 times of 85%. The success rate since 1971 has been 60%.
| # | Win % | Avg. Ret. | Avg. W | Avg. L | W/L | Avg Days | Annualized | |
| Since 1998 (DIA) | 14 | 100% | 1.4% | 1.4% | 3 | 171% | ||
| Since 1992 | 20 | 85% | 0.9% | 1.1% | (0.6)% | 1.88 | 3 | 106% |
| Since 1971 | 40 | 60% | 0.3% | 1.0% | (0.6)% | 1.56 | 3 | 41% |
Note: The annualized rate is based upon average return for the number of days the trades were held. And, the result since 1971 exclude two outliers – a 22.6% drop in 1987 and a 4.7% gain in 2008. The outliers were not removed from the other two sets.
We can improve upon this result by applying few filters. If we enter the trade on expiration Friday when the price is belwo 5-Day simple moving average then the the number of trades decrease but other measurables improve.
| # | Win % | Avg. Ret. | Avg. W | Avg. L | W/L | Avg Days | Annualized | |
| Since 1998 (DIA) | 7 | 100% | 1.8% | 1.8% | 3 | 233% | ||
| Since 1992 | 10 | 90% | 1.1% | 1.3% | (0.9)% | 1.41 | 3 | 131% |
| Since 1971 | 22 | 68% | 0.5% | 1.0% | (0.6)% | 1.60 | 3 | 59% |
To take advantage of this seasonal trend one can use the 1-X ETF DIA or its 2-X version, DDM.
The Fine Print: Before employing this strategy in your live account please understand the rationale behind this seasonality pattern. Then run some back tests for the trade start-date and holding periods. Make sure that the risk level, max draw down, win ratio and average loss falls within your comfort zone and that you can withstand the draw down and the associated risk. Also read our disclaimer.
