As we start moving into the last two weeks of the trading year, investors everywhere are hopeful that “Santa Claus” will visit “Broad & Wall.”
The actual Wall Street saying is that “If Santa Claus should fail to call, bears may come to Broad & Wall.” The Santa Claus Rally, also known as the December effect, is a term for more frequent than average stock market gains as the year winds down. However, as is always the case with data, average returns are sometimes different than reality.
Stock Trader’s Almanac explored why end-of-year trading has a directional tendency. The Santa Claus indicator is pretty simple. It looks at market performance over a seven day trading period – the last five trading days of the current trading year and the first two trading days of the New Year. The stats are compelling.
As I said, while it is a very high probability that stock prices will climb, there is a not-so-insignificant 24% chance they won’t. Such is why we want to analyze the technical backdrop to minimize the risk of “getting a lump of coal.”
However, let’s first analyze the “Santa Claus Rally.” CLICK for complete article