Another Black Friday has come and gone, taking with it the long lines, traffic jams, and insane "door buster" deals. In fact, the lines were a bit longer than last year, with the National Retail Federation reporting that roughly 23 million additional consumers braved the insanity of the biggest shopping day of the year. Overall, sales for the four-day period surrounding Black Friday totaled just $41.2 billion, barely edging out last year's $41 billion haul. Despite the modest growth, traders sent the Dow Jones Industrial Average (DJIA) about 0.34% higher on Monday. While the Dow's gain may seem insignificant from a percentage perspective, the market's positive post-Black Friday finish could have a greater significance than merely a one-day bounce back from a low-volume "crisis."
If you are a regular Monday Morning Outlook reader, then you may remember Rocky White's analysis of market returns following a positive reaction to Black Friday. (If you're not a regular reader, shame on you.) According to Rocky, "In the past 20 years, the week following Black Friday has been positive 12 times. In those years, the rest of the year (which is pretty close to a month long) has averaged a very good return of 2.00%. Furthermore, 10 out of 12 times (83%) the return for the rest of the year was positive."
Not content to rest on his laurels, our Senior Quantitative Analyst drilled down further on post-Black Friday market activity, and discovered that positive returns for the following Monday boded significantly well for the Dow Jones Industrial Average (DJIA). As you can see from the first table below, during the past 10 years, when the Dow finishes in positive territory on the Monday following Black Friday, then the blue-chip barometer closes out the year in similar fashion 100% of the time, for an average return of 2.76%. Granted, there have been only three such signals during the past 10 years, but the trend holds for the 10 such instances occurring during the past 20 years, with the Dow closing higher 80% of the time for this time frame (see the second table).
While this data doesn't represent a clincher for the bullish case, it certainly represents yet another in a litany of such indicators. Furthermore, if you want to take Rocky's Monday Morning Outlook analysis to heart, keep a close watch on the market's reaction to further details out of Black Friday, with a keen eye on the S&P 500 Index's (SPX) finish for the week.
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