The first reason that Monday’s usually trade higher is because many money managers try to put money to work and chase performance. The only negative for most money managers that are chasing performance is that a lot of capital has flowed out of mutual funds in 2010 and more money has departed in September despite the stock market rally. Therefore, it is difficult to judge the amount of capital that is available for many mutual fund managers that are chasing the market.
The second reason that Monday’s are usually a positive trading day is because the volume is often much lighter than the rest of the days in the week. Monday’s have seen very light volume for the past couple of years. If we have learned anything it is that you never want to sell short a dull market and Monday’s have certainly been very dull.
The third reason why Monday’s usually finish positive is because of the Declining U.S. Dollar Index. This morning at 4:00 am EST the U.S. Dollar Index has was trading as high as $77.65,however, at 9:50 am EST the U.S. Dollar Index is trading at $77.12. Therefore, as as long as the U.S. Dollar Index declines during the active trading hours in the U.S. the stock market will rally. By now everyone knows the stock market trades inverse to the U.S. Dollar Index. It really does not even matter if the U.S. Dollar Index finishes positive or not as long as it declines when the New York Stock Exchange is open the markets will advance.
The final reason why Monday’s are usually positive is because of the merger and acquisition activity. Often most mergers or takeovers are announced on a Monday morning. This will generally lift many other stocks in the takeover sector and create a lot of rumors for other stocks. This will cause a bid in many stocks that normally would not be trading higher.
These are the main reasons why the trading week will usually start out positive. The heart of earnings season is now underway and the volume and volatility should increase on Tuesday. After the bell today and tomorrow many of the leading stocks will report earnings such as Apple Inc.(NASDAQ:AAPL), International Business Machines Corp.(NYSE:IBM), and VMware Inc.(NYSE:VMW) just to name a few.
