Breakout

The Thanksgiving Week Trade

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Feeling thankful for the +0.03% gain in your portfolio this year? Good, you should. With the S&P 500 falling back in the red this week, now down 3.3% in 2011 (as of Thursday's close), any profit, even pennies is a positive. And with the cost of Thanksgiving dinner rising 13% and setting another record high this year, it could be tempting to chase any seasonal bounce in the market.

The week of Thanksgiving could provide the opportunity to do just that. It has ranked among the best weeks of the year for the S&P 500 for the past 70 years. Since the holiday was officially recognized in 1941, the S&P has averaged a 0.49% gain for the week, with positive moves 64% of the time, according to Bespoke Investment Group research. As a comparison, since 1941 the average one-week return for the S&P is 0.16%, and positive 56% of the time.

The Stock Traders Almanac recognizes these moves and lays out an easy way to trade the Thanksgiving market for those looking to offset that expensive turkey dinner.

"What we've seen over the years is that the Wednesday before (Thanksgiving) and the Friday after have been bullish days," says Jeff Hirsch, Editor-in-Chief of the Stock Traders Almanac. "This is a short-term trading strategy."

Hirsch admits that the times are changing a bit. In recent years Black Friday trading hasn't been as strong as it used to be, which slightly alters his typical Thanksgiving trade.

"We're seeing people evacuate the trading floors a little bit more and it becomes very typical pre-holiday light trading (on Black Friday)," says Hirsch in the attached video. "When you don't have that volume things tend to go down."

Speaking of volume, this entire week has seen below average trading action. While there's no exact culprit for the slowdown, it could be a sign of the holidays come early, fearful investor sentiment, or a combination of both.

Regardless, Hirsch explains "we like to trade this getting long the week before Thanksgiving into some weakness and selling into any rally on Wednesday, and probably getting out mostly on Friday."

He recommends playing the broad market as a basket; like buying the S&P SPDR (SPY), the DJIA (DIA), or the Nasdaq (QQQ).

But keep in mind, there's a major deadline looming for the Super Committee to agree on a deficit reduction proposal by November 23rd. The talks right now seem to be at a stalemate. Failure to reach an agreement could have a major market impact that could buck any seasonal trend next week.

Good luck and Happy Thanksgiving!

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