What are the Calendar Anomalies in the Markets?
It’s well known that the market isn’t perfect and often exhibits behaviors that have no clear explanation, where investors interpret these patterns and help them grow like a snowball. Let’s take a look at some of these anomalies that make the markets so interesting.
Before we begin, we need to define what a market anomaly is. These are any behaviors of a stock (or coin) that cannot be explained by traditional models. In other words, something abnormal, extraordinary.
Our focus can be on the calendar as the trigger for these events that tend to happen periodically, and we can take advantage of them. Here are some examples:
– Santa’s Rally: this is typically a rally in stock prices in the last weeks of the year, leading up to Christmas. Who hasn’t waited for the famous Santa’s Rally?
– January Effect: during the first trading days of the year, prices tend to increase due to tax-related buybacks, funds’ window dressing, and portfolio rebalancing at the start of the year. It’s more common in small caps.
– Day of the Week Effect: Mondays tend to have worse returns than Fridays, and Wednesdays often serve as correction days after a strong start to the week. This is explained by short coverings on Fridays and the impact of weekend news on Mondays.
– Sell in May and Go Away: an old market adage that suggests selling in May and returning in October. History shows that the S&P 500 has had better performance from November to April than from May to October.
– Macroeconomic Calendar: this undoubtedly influences the market, where trading tends to pause before certain data announcements and reacts once they are confirmed.
– Halving: in BTC, halving occurs every four years and usually has a significant impact on the market, not only after it happens but also in anticipation, creating expectations.
– Forks in Crypto: forks typically create new conditions for tokens, and like halving, attention starts much earlier. While not calendar-based, these events are interesting in the crypto space.
As you can see, the market is not only interesting in and of itself, but it also adds these kinds of anomalies and extraordinary events (which are ordinary in terms of predictability), making it even more captivating.
However, while these events have a high probability of occurrence, they are not linear and don’t happen the same way every year—otherwise, we’d all be millionaires, right?
Therefore, these are factors to consider when trading or investing, but they should be analyzed in the context of the moment and not in isolation. For example, if we’ve just had a significant rally in November and the chart shows signs of demand exhaustion, the chances of a Santa’s Rally will be very low.
The best approach is to consider these as colorful insights that help us think outside the box—or, we could say, outside the chart!
