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Short on Tuesday, Cover on Friday - Emerging Calendar Trend Spotted

|Includes: DIA, IWM, QQQ, SPDR S&P 500 Trust ETF (SPY)

I've noticed that the market has appeared to be remarkably weak in the final days of each week recently, and decided to put the numbers to the test.

We looked at the S&P 500 Index (SPX) (NYSEARCA:SPY) closing data going back to the beginning of August, which is basically when the recent weakness began.  See the SPX chart below which shows the selloff and subsequent volatile (primarily bearish as judged by Daily Percent R) trading range.

SPX Daily Chart

To look for trends we analyzed the close-to-close performance in the time period from August to now, grouped by the day of the week.  That data is summarized below.

Basically over this time frame, the SPX has dropped -10.59%, or an average of -0.22% loss per day.  The worst day in this period was a loss of -6.66% 
on Monday, August 8th – followed by the best day on Tuesday, August 9th with a gain of 4.74%.  There are 10 trading days in each daily sample (9 for Monday which had 1 market holiday), so it's a decent sample size.

The interesting thing is on the day-by-day breakdown, where we see that the average Tuesday has been a gain of 0.82% versus the previous trading day's close.  And, as our original theory proposed, Thursdays and Fridays have been noticeably weaker with an average loss of -0.72% and -0.69% on those days.

The trend of Tuesday strength and Thursday/Friday weakness is also seen in the % of winning days/losing days on those particular days — Tuesday had gains 60% of the time, while Thurs/Fri had gains only 40% of the time. 

Why have Tuesdays been strong and Thursdays/Fridays weak?  Well, one can conject that big traders are dumping holdings ahead of weekend risk or some such, but I'm not really concerned with that at this point … I'd rather let the numbers speak for themselves and try to follow the trend of money flow, assuming it will continue.

SPX Daily Performance Analysis Table

This isn't an 80%/90% odds type of probability trend, as you can see from those numbers — but the effect of the averaged net decline of -2.33% from Tuesday's close to Friday's close (combined with the 60% winner vs 40% winner) does give this strategy some legitimacy in my view.

Bottom Line — If the recent market trading range (and/or weakness) continues, one could explore a strategy of shorting the market into Tuesday's close and covering for profits on Friday's close. You might then think, "why not then go long Friday's close and exit on Tuesday's close for a bullish trade?" … well that does have some logic to it, but firstly the numbers aren't as strong here for that time frame and also the biggest selloff was on a Monday (so the risk/reward doesn't appear as good for that play).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.