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Why the Tuesday Win Streak Ended in Stock Market Today

By , Contributing Writer, Money Morning •

The stock market today dropped 76.49 points, ending a 20-week Tuesday win streak for the Dow.

The Dow closed at 15,177.54, down 0.5% from Monday.

That ended the benchmark's longest winning streak for any weekday since 1900, Ryan Detrick, chief technical analysts at Schaeffer's Investment Research told CNN Money.  The old record of 13 was a three-way tie between Monday, Wednesday and Friday.

Furthermore, not including today, the lion's share of the Dow's 16.4% gains year-to-date have come on Tuesdays. The index racked up 1,518 points during the 21 Tuesdays the market has been open for trading this year, accounting for 71% of the Dow's record 2013 gains. 

The only down Tuesday until today was Jan. 8.

While a number of theories explain the Tuesday win streak, here's one taking the blame for today's reversal: the Hindenburg Omen.

Named after the Hindenburg disaster, the omen is a technical analysis pattern that is said to portend a stock market crash.

The phenomenon occurs, when under normal conditions, a number of stocks may either set new annual highs or new annual lows, but not both at the same time. When these market breadth indicators occur twice within 36 days of each other, a market pullback could in the following 40 days.

These indicators were hit April 15 and May 29.

The last confirmed omen was in October 2007, according to Bloomberg. We all know what happened next...

Of course, there's plenty of criticism behind the HO - but just the mention of it could have been enough to spook investors away from a 21st Tuesday win.

Tuesday Win Streak 2013

Tuesday's consecutive streak of gains this year began Jan. 15. Since then, the Dow has added 1,902 points of which 1573 points, or 83%, have come on Tuesdays, research firm Bespoke Investment Group found.

Mondays have fared far worse. The Dow has shed a total of 461.9 points on Mondays, despite a bevy of mergers and acquisitions announced on the first day of the week.

While Wednesdays, Thursdays and Fridays have also been up days, none have enjoyed gains as big as the stellar Tuesday win streak.

This year's showing is not an exception or a strange quick of the calendar.  According to the Stock Trader's Almanac, Tuesdays have generated the greatest gains of the week over the past 11 years.

Why Tuesday?

What is it about Tuesdays that lends the second day of the week to such striking gains?

Well, there is the Monday factor...

One theory is that Monday, deemed the most melancholy day of the week, is historically the worst day of the week for markets.

Indeed, Monday is the only day the stock market is more likely to decline than rise.

Three of the five worst days in the S&P 500's history were on Monday. Two were so tumultuous they were given the moniker Black Monday: Oct. 19, 1987, when stocks sank more than 20%, and Oct. 28, 1929, the day that officially triggered the Great Depression.

According to data from S&P Dow Jones Indices dating back to 1928, over the past 84 years, the S&P has slumped 52% of Mondays; ditto for the Dow, dating back to 1900. The average S&P decline was 0.12%

Monday blues aside, Monday is first day market participants can react to breaking weekend news. Often when companies collapse, they do so late Sunday or early Monday following a tense weekend of negotiations in attempts to stay afloat.

Come Tuesday, investors hunt for bargains.

"Monday is hands down the weakest day of the week so far this year," Detrick said. "Tuesday has lived up to its 'turnaround Tuesday' nickname and been just as strong on the upside."

Another reason for the Tuesday win streak is mutual fund trading.

Some $3 billion has flowed into stock-based mutual funds every week this year, and a substantial number of retail investors place trades for these funds over the weekend.

Since orders need to be confirmed and the funds cleared, inflows and outflows typically aren't put to work until late Monday or early Tuesday.

Yet another hypothesis is that the Fed's quantitative easing measure of buying assets, currently $85 billion a month, has occurred on Tuesdays and Fridays.

David Lutz, a managing director at Stifel, Nicolaus & Co. cited algorithmic trading (automated trading programs), for the upward trend, saying as the trend continued, it became more "entrenched" in algorithmic models.

Weird Trends Attached to Market's Tuesday Win Streak

Bespoke found the 2013 Tuesday win streak has produced some head-scratching trends:

  • Among the Dow 30 constituents, none have finished up in each of the past 20 Tuesdays
  • The most consistent Dow performer is 3M Co. (NYSE: MMM) up 18 of the 20 Tuesdays
  • The worst and least dependable performer is Alcoa Inc. (NYSE: AA). The aluminum giant has averaged a paltry 0.1% gain on Tuesdays, the lowest among the 30 Dow components, and has only risen eight of the past 20 Tuesday. Every other blue-chip member has been up at least 10 times
  • The title of best performer goes to Bank of America Corp (NYSE: BAC), averaging a 1% gain over the Tuesday streak.

For more on the Hindenburg Omen, check out What the "Hindenburg Omen" Tells Us

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