A commenter recently asked if we could do some analysis on the market's typical trading patterns around the Fourth of July. We looked at the Dow Jones Industrial Average from 1901 to 2006 to see how the index has performed on the day before, day after, 5-days after, and week of July 4th. Our findings were on the positive side when compared to all data points. The day before July 4th has been up 64% of the time for an average gain of 33 bps. That is 30 bps better than the average 1-day change of 3 bps for all trading days since 1901.
The first trading day after July 4th has been positive 56% of the time for an average gain of 5 bps, and the 5-day period following the Fourth is up an average of 23 bps. The most positive period we found was the shortened 4-day trading week of the Fourth. This period has been up 72% of the time for an average gain of 74 bps -- considerably stronger than the average change of 11 bps for all 4-day periods since 1901.
From this table you'll also notice that since 1901, the market has registered 1-day gains 52% of the time. Even though this is just slightly better than 50/50, the Dow has risen from 70.44 to just under 14,000 today. This is an example of how only slightly favorable odds turn into big gains in the long run (think table games at casinos).