Buy Rosh Hashanah, Buy More At Yom Kippur: A 2018 Strategy

There are several old adages related to the markets.  One that is commonly mentioned at this time of the of year just ahead of the Jewish holidays is "Sell Rosh Hashanah, Buy Yom Kippur.” 

Historical Origin

The rule's origin is based on the concept that followers of the Jewish faith want to be free from material possessions during the most sacred period of the calendar year. During the 10 days between the two major holidays, Jews reflect on their actions from the previous year and atone for their sins while setting a new agenda for the upcoming year.

Upon completion of the cleansing process, they’re free to return to the markets and evaluate investments for the upcoming year. Those who are ultra-religious may abstain from the markets altogether during this period.

Sometimes truisms have to be adjusted. In 2017, it was “Buy Rosh Hashanah, Buy Yom Kippur.” In other words, just “buy” no matter what the economic, political or geopolitical circumstances are.

Mixed Results Over The Long-Term

No trading adage or strategy is 100-percent accurate over time, so what’s wrong with making another alteration to this one in particular?

In 2017, following the original adage did not pay any dividends.  Based on the closing price of the S&P 500 cash index, if investors exited the market on the close of Sept. 21 (Rosh Hashanah commences at sundown), at a closing price of 2,500.60, they would have had to reestablish their longs in the index at a higher price.  

During the period between, Rosh Hashanah and erev Yom Kippur, the night before the Day of Atonement, the index gained just under 1 percent, ending the Sept. 29 session at 2,519.36.  It should be noted the index added another 10 points on the Monday following the holiday to close at 2,529.12.

Interestingly, the market never came within a whisker of those levels, even during the major correction in late January and early February.  The index closed Friday at 2,871.68, a retreat from last Friday’s close of 2,901.52.

A New Strategy For 2018: ‘Buy Rosh Hashanah And Buy More At Yom Kippur’

So if the adjusted strategy for 2017 worked out, why not take it one step further?  Let me be the first to proclaim: “Buy Rosh Hashanah And Buy More At Yom Kippur." Deviating from the norm in 2017 worked — why not press your bet?

Nothing To Worry About This Year … 

Just observe what the index has overcome in the past year to rise to its current level.

Did the threat of a nuclear attack from North Korea put a crimp in the market?  No. Has the merry-go-round in the Trump administration and lack of substantive policy changes stifled the market? No.  Has the impending fourth interest rate hike since December 2017 instigated an exodus from stocks to fixed-income and interest-bearing assets? No.

… Except Tariffs, Trade Wars

As evidenced by Friday’s violent midday price action, the only thing that can instigate a steep sell-off is the mention of increased tariffs on China or stalled NAFTA negotiations. Time and time again, investors have been net buyers instead of sellers on these declines. At this time, the index failed to breach its early morning low and is clawing its way back to mid-range for the session.

The president has been known to tout stock market performance, and there seems to be a good chance the administration could go into full retreat with tariffs if the market dictates — or at least take a softer stance. 

Market Action Ahead Of The Holiday

Overall, trading has been choppy in the shortened trading week due to the preceding Labor Day holiday, with the index retreating a bit from its recent all-time high. A  few strong earnings 

Lightening up this week and  adhering to the old adage may turn out to be prudent. But taking the adjusted adage from 2017 — “Buy Rosh Hashanah, Buy Yom Kippur” — one step further to “Buy Rosh Hashanah And Buy More At Yom Kippur” could turn out to be the best strategy.

This new adage correlates well with the another popular trading term: “the trend in your friend”.  There is no doubt the trend is up, and if the market is gearing up for a “Santa Claus Rally,” investors may be pleasantly surprised where the index is three months or one year from now.

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Photo by Zachi Evenor/Wikimedia.