Thanksgiving Holiday Trading Strategy | Seasonality

Can we develop a Thanksgiving holiday seasonal trading strategy? Is Thanksgiving bullish or bearish for stocks? Thanksgiving Day is one of the federal holidays in the US. The day after Thanksgiving is called Black Friday and is a day when consumers go on a shopping spree. But how does Thanksgiving affect the US stock markets? 

Yes, our backtests reveal that stock market performance during Thanksgiving is higher than any random week. Thanksgiving is bullish for stocks with better average returns than any random week.

The US financial markets do not open on Thanksgiving Day because it is a federal holiday. Trading does not take place on any of the U.S. stock exchanges on that day, and the following day, the stocks and bond market also close early.

Related reading: Backtested seasonal trading strategies

(The backtests done below are based on the cash index which is not a tradable instrument. If you trade the corresponding ETF or futures contract the results might differ. As always, do your own backtesting.)

The Thanksgiving holiday

Thanksgiving Day is an annual federal holiday in the United States to celebrate the harvest and other blessings of the past year. It is celebrated on the fourth Thursday of November every year. It is generally believed that the American Thanksgiving is modeled on a 1621 harvest feast observed by the English Pilgrims of Plymouth and the Wampanoag people.

The Thanksgiving holiday is particularly rich in legend and symbolism. Traditionally, the Thanksgiving meal typically includes turkey, bread stuffing, potatoes, cranberries, and pumpkin pie. Regarding vehicular travel, the Thanksgiving holiday is one the busiest of the year, as family members tend to gather together to share the moment.

Is the day before Thanksgiving or after a trading day?

While Thanksgiving Day is not a trading day for all US markets, the day before and after it can be trading days. The day before is a full trading day, while the Friday after Thanksgiving (Black Friday) is a half-day where the stock market close at 1300 local ET time. The Friday is called Black Friday because of its importance for the retail sector.

The Thanksgiving holiday effect in the S&P 500 – backtest 1: the Thanksgiving week

How does the stock market perform around the famous turkey celebrations in November? We test the Thanksgiving holiday effect this way:

• • We go long at the close the Friday prior to Thanksgiving

• • We exit at the close on Black Friday (we hold for one week)

We backtest S&P 500 from 1960 and Amibroker returns the following equity curve:

There are 63 trades since 1960, the average gain is 0.64%, the win ratio is 68%, the profit factor is 2.2, and the max drawdown is 7%. This equals a CAGR of 0.6% while being invested just 1.6% of the time. The gain is higher than for any random week during the year.

The Thanksgiving holiday effect in the S&P 500 – backtest 2: the week after Thanksgiving

In our second backtest of the day, we look at the performance the week after Thanksgiving. We test the following:

• • We go long at the close of Black Friday

• • We sell at the close one week later

The equity curve looks like this:

As you can see, the equity curve is pretty erratic. The average gain per trade is a low 0.03%, much lower than any random week.

Thanksgiving effect until December – backtest 3

Let’s test another twist of the Thanksgiving effect:

• • We go long at the close the Monday prior to Thanksgiving.

• • We exit at the close on the first trading day of December.

Since 1960, the S&P has returned this equity curve based on compounding 100,000 from 1960:

The average gain per trade is 0.,58%, the win ratio is 74%, the profit factor is 3.3, the CAGR is 0.56%, and time spent in the market is 1.15%. The results are pretty good, but most of the gains come from the Thanksgiving week (backtest one).

The Thanksgiving week per weekday – backtest 4

Let’s look at the performance per weekday during the Thanksgiving week:

• • Friday close until Monday close: 0.14%

• • Monday close to Tuesday’s close: 0.02%

• • Tuesday to Wednesday: 0.23%

• • Wednesday to Black Friday: 0.1%

Clearly, The Tuesday to Wednesday is the best – by far.

If we enter at the close of Tuesday and exit at the close of Black Friday we get the following equity curve from 1960 until today:

The average gain per trade is 0.51%, the win ratio is 80%, the profit factor is 3.6, the CAGR is 0.50%, and the time spent in the market is 0.79%.

However, the strategy seemed to perform better a couple of decades back.

Does it matter if the price performance prior to Tuesday has been weak or strong? No, if we test with different price-performance criteria prior to Tuesday, it seems the strong performance is still there no matter what.

Thanksgiving effect on retail stocks – Black Friday – backtest 5

The day after Thanksgiving is called Black Friday because of the extensive sales on that particular day. This day has specifically become popular after the year 2000, not only in the US but also in other areas of the world. Even we have used Black Friday sales.

Because of Black Friday, which has developed into a consumer bonanza, it might be interesting to check the performance of the retail sector. Let’s see how retail stocks have fared during the Thanksgiving holiday season.

We backtest RTH since its inception – the ETF that tracks retail stocks:

We go long at the close on the Friday prior to the Thanksgiving week and we exit at the close on Black Friday. This is the equity curve since 2001:

The performance is strong: the average gain is 1.26% per trade, stronger than for S&P 500, but it’s far from consistent. Keep in mind, though, that November and December are strong months in the stock market.

Order Amibroker code for the Thanksgiving effect:

Testing seasonalities can sometimes be difficult. If you want to have the Amibroker code for the Thanksgiving effect, you can order it by becoming a Silver member.

Holiday effects in the stock market

We have covered all the US stock market holiday effects in trading. To sum up, we have the following other holiday effects in the US markets:

Thanksgiving effect in trading – conclusion

Our backtests reveal that the best Thanksgiving effect in trading is on Tuesday during Thanksgiving week, and retail stocks are among the strongest stocks during this holiday season.

FAQ:

What are the key features of the Thanksgiving effect strategy no. 1? Strategy no. 1 involves going long at the close the Monday prior to Thanksgiving and exiting at the close on the first trading day of December. The article provides details on the equity curve, average gain per trade, win ratio, profit factor, CAGR, and time spent in the market for this strategy. How does the Thanksgiving effect strategy no. 2 differ from the first strategy? Strategy no. 2 entails going long at the close the Friday prior to Thanksgiving and exiting at the close on Black Friday. The article outlines the performance metrics for this strategy, including average gain per trade, win ratio, profit factor, CAGR, and time spent in the market. Is there an option to obtain Amibroker code for testing the Thanksgiving effect? Yes, the article offers the option to order Amibroker code for testing seasonalities, including the Thanksgiving effect. This can be useful for those interested in conducting their own analyses.