Where Is The Santa Claus Rally?

With the S&P 500 down so far in December, some investors and traders are asking “where’s the Santa Claus Rally”?

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But as I explained in our comprehensive guide to the stock market’s seasonality, the stock market doesn’t always go up in December (even though December is historically the stock market’s best month). Seasonality factors are of secondary importance.

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Go here to understand our fundamentals-driven long-term outlook.

Let’s determine the stock market’s most probable medium-term direction by objectively quantifying technical analysis. For reference, here’s the random probability of the U.S. stock market going up on any given day, week, or month.

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*Probability ≠ certainty. Past performance ≠ future performance. But if you don’t use the past as a guide, you are walking blindly into the future.

Drawdown in December

December is usually the stock market’s best month of the year.

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That’s why it’s uncommon for the S&P to have a drawdown of more than -6% in December.

Here’s what happened next to the S&P 500 (after December) when it fell more than -6% at any point in December from November’s close.

*Data from 1900 – present

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Interestingly enough, there’s a bearish lean 3 months later. What’s even more interesting is that most of the bearish cases happened from 1916-1941. This demonstrates

how seasonality changes over the decades. Before WWII, May – October was the best half year, whereas after WWII, November – April was the best half year.

Some big daily swings

The stock market is making massive intraday swings right now. As of December 10, there have been 4 consecutive days in which the daily LOW was more than -1.7% below the previous day’s CLOSE.

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