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

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.

The Emperor's New Clothes

Why General Electric's Stock Can Still Shock Investors After Alstom SPY Chart
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.

If you liked this article you might like

Market Is on the Straight and (Very) Narrow

Look Back to Go Forward

Stock Observations; Reviewing Equities: Doug Kass' Views

Even North Korea's Kim Jong Un Can't Stop This Epic S&P 500 Stock Rally

Robots Might Be Biggest Obstacle for Stock Market Bears