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The market's gains are crammed into 7 days

The market tends to cram most of its gains into the period surrounding the turn of the month, according to a study by Eddy Elfenbein, editor of the Crossing Wall Street blog.

Since 1932, the S&P 500 has risen about 6.5 percent per year. But if one isolates the last four and the first three trading days of every month, the market has risen 8.6 percent per year. And in fact, since this only covers about a third of all the market days, that would be an annualized rate of 28 percent, if the entire comparable period were filled by these end-of-month days. (Note: The S&P 500 was only created in 1957, but reconstructed prior historical information is available.)

That means that during the two-thirds of the month excluding the seven-day turn-of-the-month period, the market is actually lower overall.


For Elfenbein, this is an interesting anomaly that does not make an investing strategy. However, it could color trading decisions.

"If you're looking for bargains, you may want to wait till towards the end of the month, maybe the last week or so, to lock in some good values," Elfenbein said Friday on CNBC's "Trading Nation." "And conversely, to sell, you might want to wait till that first week of the month, when stock prices might be a little elevated."

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To explain the anomaly, Rich Ross of Evercore ISI would look to patterns of hedge-fund buying and selling.

"Hedge funds get graded on a monthly basis, so obviously that marking — both at the end of the month and at the beginning of the subsequent month — is when you put your money to work and you place your bets for the month that is to come. That takes on heightened performance, and that's what's going to drive that activity," Ross said Friday. "In between, we're just duking it out in hand-to-hand combat, and that produces negative returns over time."

Strategy-wise, Ross would use the information as Elfenbein would.

"Sell early-month strength and buy late-month weakness if you happen to see it," he advised.

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Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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