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After Vacation and Fireworks, Post-July 4th Trade Is Mostly Higher

Stocks in this article: SPY QQQ DIA

NEW YORK (TheStreet) -- Trading volume in equities tends to decline during the week of July 4, but in the past two years, the market has raced to higher levels in the month following Independence Day.

Traders generally leave the office on vacation and news headlines are light during the week, leading to a consolidation in major equity indexes.

In 2012 and 2013, the measurement for rate of change in volume for SPDR S&P 500 (SPY), PowerShares QQQ (QQQ), and SPDR Dow Jones Industrial Average (DIA) halved in the run-up to July 4th, leading all three indexes to trade in a relatively trendless direction.

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SPY data by YCharts

And although it is difficult to capture big profits in that kind of trading environment, a trend has emerged in the month following the summer holiday.

After the initial consolidation pattern broke to the upside in post-July 4th trading, equity indexes continued to move higher between 5-10%.

That may seem unbelievable now, considering major U.S. equity indexes are all trading at all-time highs, but a trend is a trend.

The market hasn't broadly sold off during the weeks following July 4 since 2004. Even during bear-market conditions in 2007 and 2008, indexes managed to squeak out gains for a few weeks after the first week of July.

The trend is not infallible, however, and traders shouldn't blindly invest in the market because of what one article says about post-July 4th trends. Due diligence is still required, and to profit from any trend, a trader must be nimble.

That is to say that the opportunity for profit will be there, but this is not the start of a buy-and-hold period. It would be wise to invest a manageable amount and get out of the trade when profits have been captured.

At the time of publication, the author had no position in any of the funds mentioned.

Follow @macroinsights

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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