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Christmas Rally 2018 thread WIP


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Work in progress ...

Ho ho ho!

Its soon approaching Christmas (dare I even say it) although I think as early as late October I recall seeing baubles and festive goodies in the local shops.

It has been a bit of a mixed year really, started good, then flatlined. Still need to review overall performance although that will come end of year. 

I thought I’d kick off early and knock up a quick thread for the infamous Christmas rally. Especially with the marktes having sold off very recently (on 26 Oct the FTSE 100 saw a low of  around 6,854 there is some argument for entering a starting stake soonish, to take advantage of the low spot, and adding to that if the markets look favourable or closing it out if the volatility persists.

The FTSE is currently in line with its 20day EMA, around the 7,100 level, and under the 100EMS of 7,338.
We had a high of 7,903 on 02 May 2018, and the year low as mentioned above was 26 October.

Looking back to last year, November the rally did not kick off really until 8th December, and through November lost about 200 points from 7,500 level down to 7,300 through the month.

1625572087_Screenshot2018-11-11at17_09_40.thumb.png.70f3aaed6b6bfc88eedc5bb3a21b2707.png

According to the 2018 Almanac, which is full of great stats and insight, a plotted FTSE 100 index taking data from 2000 to 2016, in the trading days from early November to to end December, the month of November is typically flat or weak through the 11th month, with the best indicator of a rise triggered on the 9th December. 

The book helpfully points out that trading day 10 of December 2018 will be on date 14 December. 

 

Since 1984 we are told the UKX has risen in 59% of years during November

However, factor this in with what we know : ie, the markets have already gone through a period of some weakness over the last couple of months.


We also need to know what economic events are on the horizon. We can use the IG economic calendar for this https://www.ig.com/uk/marketanalysis/ig-economic-calendar/2018/11

  • 23 Nov US NYSE closed for thanksgiving
  • 05 Dec UK FTSE shuffle
  • 07 Dec US NFPs
  • 13 Dec EUR ECB governing council meeting

 

These are the events sticking out for me, I’ve left off anything after the 14th December, as we hope the rally to have commenced by then.

Feel free to add your views, TA or charts in the run up to Dec. Feels too early to say ‘I hope it’s been a good year’ at this stage, with two months to go. But let’s see how the next two crucial months unfurl.

 

Rgds

Rimmy2000

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OK @rimmy2000, I'll play, just for fun.  I think the Santa Claus rally is Market myth perpetuated by brokers to stir up retail investors.  I have marked all the Dec moves on the monthly chart on SP500 below.  I observe the following:

  1. December rallies are far from being the largest or most important moves in the market overall - so if I am not in the market either way I don't mind but if I am hoping to squeeze a bit more out of my longs I might not bother, if I was worried about what happens next.  In fact quite a few Decembers are balanced, spinning top type candles.  Implies a lot of whiplash so maybe better not to be in?
  2. You get more December rallies in a Bull trend than a Bear trend - doh!
  3. There seems to be more negative Decembers during consolidation phases - are we in a consolidation phase?  I think we are...

Conclusion: it's really not something that stacks to rely on as a support for trading Long.

SPTRD-Monthly_Xmasrally.thumb.png.8fbbdeb175a624f3a3d8239f02f18f52.png

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  • 4 weeks later...

I've looked at the data going back to the earliest year I could find (Orwell's 1984 ) and tested buying on 15 closing on 31.  Only 4 years showed a negative return and the maximum loss was 43.6 points with the minimum gain being 13.7.

Still believe Santa doesn't exist?!

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Yeah ok @psycho, probably a good move.  I could probably find other time periods that had an even better result, especially in the raging bull market we have seen since Bretton Woods.  If you go back further than that things are different.  Maybe there is an element of self fulfilling prophesy about the Santa Clause rally.  Maybe it wont exist during the coming Bear market.  I don't ever hear anyone talking about the Chinese New Year Rally, and why would the Chinese or Japanese have a Santa Claus rally..?

The key point is whether the Santa Claus phenomenon (if it exists) is at all relevant.  Well you can't trade it without signals so not relevant at all is my opinion.  And this year we do not look like we are going to get one but if we do it will be a relief rally at best (which is in the so-what category).  So ok for fun we discuss it but in reality it falls into the same category as received wisdom like "sell in May and go away".  A pure distraction at best and a false life line to those holding losing positions at worst.  Trade the price action, forget about the market myths. 

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Can't see what the problem is here, @psycho has researched a topic the results of which back up previous stats and for some strange reason you guys are calling it a 'myth' 👹.  Recorded historical data is not mythological.

Or are you saying the math is mythical?

Are the gains stunning - no though probably averaging around 2%  since 2000 is not bad, would you bet the farm on it - no, is it guaranteed - of course not, but historically the math points to a generously positive probability.

In refutation please don't forget to show your working out.

 

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@Caseynotes What I find most attractive is the high risk/reward ratio.  And ISF even pays a dividend!  You might want to look at this

Having said that, it must be borne in mind that

  • the price action right now is negative (hopefully leading to a better bounce but can't rely on that)
  • The maximum number of years it has worked consecutively is 11 (91-01), minimum is 3
  • we have had 5 consecutive years so far

I would welcome views as to what effect the discussion in the mainstream media is likely to have on this.

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Why do you think there is a problem @Caseynotes?  It is just an exchange of thoughts, there doesn't have to be a winner or anything.  It isn't Maths, it is statistics.  You like to quote Mark Twain, well I refer you to a Benjamin Disraeli quote Twain popularised in America, "Lies, **** lies and statistics"...  It is ironic to me that someone who denies Fibonacci, a true Maths genius, believes in Santa Claus...  😉

BTW, I did submit some analysis in my original reply to @rimmy2000 but here it is again.  This is the SP500, the largest market in the world, which @psycho himself says his analysis didn't really pan out on.  My take is as follows:

  • Since the Tech bubble burst in 2000 there have been 11 December month positives and 3 negatives but also 4 flats, let's say they are not rallies and that tallies 11-7
  • In all but 2011, 2012 and 2016 the December open was revisited in subsequent months (on only interesting for day traders maybe)
  • In all the years where the market topped out prior to December there was a flat or negative December month
  • Now look at December to date, hmm

So maybe this is, in the final analysis a day trader vs long term trader bias.  No long term trader worth their salt will give a shred of credence to the notion of a Santa Clause rally.  No trader of any description should, in my opinion, do so.  A gambler might...

Merry Christmas 🎅🤶🧙‍♂️🧙‍♀️👼

SPTRD-Monthly_141218.thumb.png.8d66dfb6b0daed247e345e13dc448ee1.png

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@Mercury point to note - my analysis was based on buy close 15 Dec sell close 31 Dec (or working days after/before) not for the whole month of December although in the cases when you called price action correctly early in December the gains would be greater.  

I don't view this as a long term trade and certainly not as a day trade.  It's a medium term trade !  Carry it forward into the new year at your peril (been there done that!)

The S & P data I analysed went back to 1950 of which 52 were winning and 15 losing.  The risk reward ratio is lower.

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Ah @Mercury, I see where you're going wrong, you're mistaking the S&P for Ftse and the month of December for the last 2 weeks of, easy mistakes to make.

I suspect the FT article linked in @psycho's last post re self fulfilling prophesy for the Santa Rally as well as Fibonacci (re trading) and Santa himself for that matter is probably correct, if enough people really believe it will all come true. 👀

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All good @psycho, I just think you could do the same analysis for other time periods and get similar results in a raging Bull market is all.  The watch out I am offering is not that your analysis is wrong, obviously, but that in the Dec after a market top Santa stayed at home by the fire.  My analysis on the market (outwith any Santa Clause Rally) is for this Bear to go mental if we get the breakout I mentioned in a separate thread.

522150816_SantaClausrallywish.thumb.png.cd146d364eec46db70769d75a2deb605.png

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Good point, not sure what went wrong there but suspect as you say t'was a lack of true believers. I did notice that in the graph way above there were positive years all through the credit crunch and we're only in a consolidating market at the moment, not even a bear market so there's still hope.

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Get where you are coming from there @Caseynotes but therein lies another bias difference between us because I believe we are in a Bear market, it just hasn't revealed it claws yet.  If price action breaks through the 2 near term levels of resistance and records a new lower low it will race down to the 5 Feb 2018 low and a break there is game over for the Bull.  That's 23,100, we are at 24,300 so not that far away.  After that, or even in between the 2 lows I mentioned, and end of Dec rally will be a weak retrace affair at best.

Anyway price action will reveal all in the coming days.  I guess my overarching point is not to pin hopes on a Santa Claus rally this year of all years, owning to the price action since Oct...

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