How the ‘buy Yom Kippur sell Rosh Hashana’ trading theme is playing out in the stock market in 2021

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It may be a quirk of seasonality or investing folklore. Either way, the investing strategy known unofficially as a “Sell Rosh Hashana, Buy Yom Kippur” often adheres to a common pattern, where markets slump in September, only to gain some traction higher in October, followed by a better seasonal trading period in November.

This year, Rosh Hashana, the Jewish New Year, began at sunset on Sept. 6 and ended at sunset on Sept. 8, while Yom Kippur, the day of atonement, begins at sunset Wednesday and concludes Thursday.

Jeff Hirsch, editor of the Stock Trader’s Almanac, told MarketWatch in a Wednesday interview that there is something to the seasonal trend.

“It appears to be evidence based … and you can correlate it to traffic around the New York area,” Hirsch said.

Hirsch wrote in a blog that the “‘Sell Rosh Hashana, Buy Yom Kippur,’ pattern is that with many traders and investors busy with religious observance and family, positions are closed out and volume fades creating a buying vacuum.”

It also helps that September is considered a notoriously weak month for stocks and October, of late, has gained an ugly reputation for market downturns. On top of that, September is a month with the simultaneous expiration Friday of individual stock options, stock-index options, stock-index futures and single-stock futures, also known as quadruple witching.

Adding to market weakness this season is that Rosh Hashana followed Labor Day, contributing to lower volumes over several sessions, since markets were closed last Monday in observance of the federal U.S. holiday.

Dating back to 1971, the Dow Jones Industrial Average DJIA, +0.79% has fallen 28 out of 50 Rosh Hashana holiday periods. Last year also saw the Dow sink 0.3%.

Hirsch notes that being long from Yom Kippur to Passover, which falls on April 15 in 2022, has been a successful strategy, producing 64% more advances, and half as many losses, with average gains of 7.0%.

This past year, the Dow gained 19.9% from Yom Kippur 2020 to Passover 2021, according to Stock Trader’s Almanac.

At last check, the S&P 500 SPX, +0.94% was down by about a 1% since Sept. 7 to date, the Dow was off 0.8%, the Nasdaq Composite Index COMP, +0.87% was trading 1.7% lower, while the small-capitalization Russell 2000 index RUT, +1.16% was down 1.9%.