The first post in this series compared the average monthly closes in the S&P 500 since 1950. The blue bars in our chart represent the average closing gain (or loss) by calendar month over those 58+ years.

This updated chart adds an alternative way to measure monthly behavior. The gray bars represent the monthly averages of daily closes. In effect, we're incorporating the intra-month daily volatility into the monthly measure. This method of comparison probably has little interest for short-term traders. But long-term investors may find it intriguing for a couple of reasons. By averaging in the daily volatility, we may catch a better view of the underlying seasonality of the market. Also, since we have the data for monthly averages of daily close since 1871 (thanks to Yale Professor Robert Shiller), we can compare seasonal trends over many different historical periods.

This alternative approach, at least since 1950, looks remarkably different from the monthly close changes. The values are less volatile (i.e., the high-low range is narrower). Also, in six of the months (Jan, Feb, May, Jun, Aug, and Sep), the monthly averages show greater positive change than the monthly closes. For example, the January effect is more powerful, with the first month of the year moving into first place for the average monthly gain. September is far less grim, and February looks much better — coming very close to the average monthly gain.

October, noted in our previous discussion as a so-so month with manic-depressive volatility, is now revealed as the poorest overall performer in the post-1950 market, a distinction that seems appropriate for the month that has hosted half of the bear market bottoms since mid-century.

Later this week I'll use the monthly averages of daily closes to compare seasonality in various time frames.