Over the past century, there have been nine holidays during which the Exchanges have traditionally been closed. Historical research shows that stock prices often behave in a specific manner in each of the two trading days preceding these holidays. By becoming aware of this behavior, both short-term traders and longer-term investors can benefit.

The general strategy is to purchase equities one or two days prior to a holiday. Short-term traders would look to sell just after the holiday while longer-term investors would wait until year end. Both strategies have proven to be profitable plays. The theory behind this effect is that traders are lightening up their holdings (selling) prior to the three day holiday in order to avoid any unexpected bad news. The selling pressure drives stock prices down, making those days a good opportunity for buying lower in the range.

Here is the average pre-holiday results for the last 50 years, based on the S&P 500 Index:

Holiday Buy two days before, sell at year end Buy one day before, sell at year end President's Day* -0.1% 12.2% Good Friday 7.3% 17.8% Memorial Day -4.7% 22.8% Independence Day 13.3% 37.3% Labor Day 16.8% 33.7% Election Day 17.9% 4.6% Thanksgiving 4.3% 1.1% Christmas -7.1% 15.2% New Year's 31.1% 19.6%

*Note: President's Day data is comprised of the aggregate of both Washington and Lincoln's Birthday prior to 1998.

The original research was based on the behavior of the S&P 500 Index around the 419 holiday market closings that occurred from 1928 to 1975.

To put those returns in perspective, if you had invested $10,000 in the S&P 500 Index in January 1928 and sold it all in December 1975, you would have ended up with $51,441. However, if you had invested one-ninth of your money just before each pre-holiday period (selling everything at the end of the year), you would have finished with $1,440,716. Not bad!