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​​The “Santa Claus Rally” starts today!



A look at the “Santa Claus Rally” and which gains it has historically produced.

Trading chartSource: Bloomberg


 Axel Rudolph FSTA | Senior Financial Analyst, London | Publication date: Tuesday 21 November 2023 12:43

Now is the time to buy US stocks

According to Jeff Hirsch’s Stock Trader’s Almanac now is the time to buy US stock indices as we enter a bullish seasonal pattern today.

By analysing data going back to 1950 Mr Hirsch shows that the November-to-January time frame is the year’s best consecutive three-month span to hold stocks.

Thanksgiving kicks off this seasonal stock outperformance, followed by the “Santa Claus Rally” which covers the last five trading days of the year and the first two of the New Year, and the “January Effect” of small caps outperforming large caps in January, which begins in mid-December.

Mr Hirsch and his friend Larry McMillan of the Options Strategist have combined “these seasonal occurrences into a single trade: buy the Tuesday before Thanksgiving and hold until the 2nd trading day of the New Year.” Apparently when trading this strategy with options the best day to do so is on the day before Thanksgiving.

Since 1950, the S&P 500 is up 79.45% of the time from the Tuesday before Thanksgiving to the 2nd trading day of the year with an average gain of 2.57%. The Russell 2000 is up 77.27% of the time since 1979 with an average gain of 3.19%.

Thanksgiving - Santa Claus Rally Trading statistics

Santa Claus RallySource: Hirsch Holdings Inc. & StockTradersAlmanac.com

There is an important caveat to the “Santa Claus Rally” though, coined by its 1972 inventor Yale Hirsch’s phrase: “If Santa Claus should fail to call, bears may come to Broad and Wall.”

The “Santa Claus Rally” in the current market context

When looking at the above strategy in the current context one shouldn’t be surprised if equity indices on both sides of the pond may at least short-term consolidate as liquidity dries up around the prolonged Thanksgiving weekend.

After all, with US indices having strongly risen from their late-October lows - by between 8% and 14% in little over three weeks – and looking technically overbought, a minor correction over the coming days shouldn’t come as a surprise.

Having said that, such a counter-trend move might represent an even better stock buying opportunity for the above mentioned strategy, especially since the last few days of November tend to lead to stock market gains.

Best month of the year chart

Best month of the yearSource: Carson Investment Research, FactSet 20/11/2023 @ryandetrick



This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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