The Santa Claus Rally is the historic seasonality that occurs in the stock markets around Christmas and New Years. From about the 8th last trading day in December through the first three trading days in January, there has traditionally been fairly reliable upward swings in the markets, usually delivering positive returns.
According to Martin Roberge of Dundee Capital Markets, who has studied S&P 500 returns data going back to 1964, the market rises, on average, 2% during these 11 trading days before profit taking comes in on the fourth trading day of January – which, this year (2010), will be January 6th. This ushers in what has come to be dubbed “Grinch Season.”
It might sound like the moon cycles theory of stock markets, but it’s actually backed up by the historical averages.
Seasonal Investing ETF and the Basics of Seasonal Investing Strategies
How Should You Play the Santa Claus Rally and Grinch Season?
With this knowledge, you can’t expect to do something like “beat the market” since everyone else also has this knowledge (or at least, many do). What you can do, however, is pay extra attention to your stock watchlist and note whether you see any bargains during Grinch season or excess upside during the expected rally.
You might want to watch closely, too, since traditionally lower trading volume levels mean less liquidity and thus wider price swings between bid and ask prices. This could mean you get an even better bargain, but you need to be prepared to pull the trigger or know what entry point to expect.
December Stock Market Trends: What To Invest In At the End of the Year
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Here is a fun, interactive site for timing the market:
http://www.crystalbull.com/stock-market-timing/CrystalBull-Trading-Indicator-History-chart