When Is The Santa Claus Rally?

Dec 06, 2022

Every year, like clockwork, everyone starts talking about the Santa Claus rally. 

As if it's this magical unknown random incident. 

You see it every year on CNBC someone comes on and talks about their bullish/bearish case and puts the disclaimer at the end...

"...and if the Santa Claus rally shows up this year"

And of course Jim Cramer will jump on the bandwagon.

But believe it or not, we have some pretty good statistics on the year end effect, AKA Santa Claus Rally. 

What would you expect from us nerds at Pollinate?

Usually attributed to tax loss harvesting, selling losing positions before the end of the year to be able to take the tax credit against this years capital gains. Since trading volume USUALLY drops to the lowest daily averages of the year during the last week or two in December, most selling happens the first half of the month.

Also, people are on vacation, traveling, with family and generally don't want to focus on the markets. 

After this selling pressure dies, there's another event that hits the markets, every quarter and that's the Quad Witching event, which refers to a date when stock index futures, stock index options, stock options, and single stock futures expire simultaneously...this will happens on the third Friday in December. 

Historically, buying the market, in this case let's use the $NDX (Nasdaq 100), after quad witching and in the last two weeks of the year, then selling the January open produces the best results. 

Particularly if you buy 3 trading days before Christmas and sell 8 days later, this would generate the most profit for you.

h/t @QuantifiableEdges on Twitter or https://www.quantifiableedges.com 

We can also look at Larry Williams Trading Days Left in Month for December which buys the $SPX  X number of trading days before the end of the month.

h/t @SethGolden on Twitter or at Finomgroup.com for sharing this one.

If we look at a seasonality chart going back to 1997, we can see that the $DJIA performs strongest from October in to the end of the year (minus a few hiccups along the way). 

h/t @McClellanOsc on Twitter or at https:/www.mcoscillator.com for this one.

Clearly we have seasonality and statistics in our favor, with around an 80%+ win rate, in all market regimes. 

This is the sort of work we do in the Trading Lab

We use statistics to find the edges, structure opportunities around them and trade. 

Whether we are day trading Curvy for 2R a day, or swing trading for 5-10R a month, the Trading Lab is the place to be for practical systematic trading, and turning a trading hobby in to a trading business. 


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