S&P 500: Expect a Pre-Presidents

As if the extreme overbought conditions in the market aren’t enough to convince investors that the market is primed for a pullback, then the Stock Trader’s Almanac surely should.

According to the Almanac, the S&P 500 almost always drops on the last trading day before the Presidents’ Day weekend. Sixteen of the last 20 years, the S&P 500 has fallen on the Friday before Presidents’ Day.

The Dow Jones Industrial Average is less predictable, having fallen on just seven occasions in the last 12 pre-Presidents’ Day Fridays.

History also tells us that stocks will continue to fall the day after Presidents’ Day. The S&P 500 was down seven of the last 11 Tuesdays after Presidents’ Day.

These numbers have rarely seemed more relevant than this year. Stocks have been on a tear lately, with the S&P 500 up more than 17% since November 25. Overbought conditions and just plain logic given the debt crisis in Europe and the glow economic growth here in the U.S. are clear warning signs that the market is due for a correction.

But analysts have been saying for weeks that stocks are on the brink of pulling back, and yet they have beat the odds and climbed higher every time. Time and again, the market has defied all logic and expert opinion. Perhaps recent history will be the indicator that finally gets the pullback right.