An old market proverb often mentioned just before the Jewish holiday is “Sell Rosh Hashanah, buy Yom Kippur”. With the holiday season starting at sundown on Sunday, it’s time for this year’s investment take on the proverb from this investor’s perspective.
And boy it ain’t easy The 2022 holiday certainly comes during tumultuous times in the US and the world, and Friday’s price action certainly doesn’t conjure up many bullish scenarios.
Historical origin: The origin of the rule is based on the idea that followers of the Jewish faith want to be free from material possessions during the holiest time of the calendar year.
During the 10 days between the two major holidays, Jews reflect on their deeds of the previous year and atone for their sins while setting a new agenda for the coming year.
After the clean-up process is complete, they can return to the markets and evaluate investments for the year ahead. Ultra-religious people may stay away from the markets altogether during this time.
Long-term mixed results: No trading saying or strategy is 100% accurate over time.
In 2021, following the original saying was a winning strategy. Last year it was rare that the market was closed on Labor Day. Since Rosh Hashanah began at sunset on Monday, September 6, the markets were closed.
The last day of trading before the start of the holiday was Friday, September 3rd, 2021.
On the day, the S&P 500 Cash Index settled at 4,535.43. After the 10 days of trading and the end of Yom Kippur on Thursday 16th September, the first day to buy the index would have been on Friday 17th September at the opening price of 4,469.74.
That means a drop of 65.69 points or 1.5%, which proves to be a winning strategy in the above order.
Of course, the index went significantly higher by the start of the year, but if you were holding your bag from that positioning, you’d be deep in the red. With a cash index of 3,695, that’s a drop of 774.74 points, or 17%.
Sell Rosh Hashanah like a charm: 2022 was one of those rare years when selling the Rip was always the right thing to do.
Beginning with the first trading day of the year and ending with the late June low, the bears were in charge.
The bear market rally from this low sent the Cash Index back to 4,325.28 in mid-August, but almost all of those gains have dried up.
Much of the pullback came after the worse-than-expected August CPI report, which revealed that inflation has not yet peaked.
From the close (4,110.41) on Monday September 12 before the September 13 report to the close (3,693.23), the index is down 417.18 points or 10.1%.
The cash index is still around 26 points above its yearly low of 3,666.77
Buy Yom Kippur? At the rate at which the index has fallen, it could easily break the June low on Monday. This is much earlier than the end of Yom Kippur, which is October 5th.
The next opportunity to buy back the index according to the saying is on October 6th.
At this point, it would take a brave soul to initiate blind longs in a volatile bear market.
The number of factors counteracting the market is numerous. Of course, the arrogant still fuels inflation, leading to further rate hikes.
The third-quarter earnings season is off to a rocky start, although it hasn’t really started yet. This is evidenced by several companies already warning that earnings will be below estimates.
Over the past week, warnings have come from guiding stars for the economy FedEx Corporation FDX and Ford Motor Company f. Before that it was Nucor Corporation NOWwhich has come under pressure since his guidance cut, falling from $140 to $104.
The macroeconomic environment is muddled due to the war in Ukraine and tensions between Taiwan and China, which could draw the US into the conflict. Finally, the US dollar’s inexorable rally penalizes other countries dependent on US products. Last but not least, TINA (There Is No Alternative) trading is dead to the market. The ever-rising interest rates are pulling trillions of dollars out of the stock market in search of any yield, even if they are well below the rate of inflation.
Forward: For those investors waiting to roll their fortunes on a test of the June low, Friday was darn close to that of the S&P 500. The solid recovery to close will have investors pondering whether this is another “Buy the dip opportunity would be .
From an overly optimistic perspective, the latter part of the old adage “Buy Yom Kippur” could offer investors a less risky entry into the markets.
Photo via Shutterstock.