Is the Santa Claus Rally Real? | Nirvana Systems Inc.

Is the Santa Claus Rally Real?

Most traders and investors have probably heard of the Santa Claus Rally. This refers to the belief that the market usually posts gains in the trading week following Christmas. Some people extend the Santa Claus Rally to include the full month of December. Yet before we start putting our hard-earned money on long positions based on market legend, let’s take a closer look at how the market actually trades in December. In other words, let’s see if the Santa Claus Rally actually real.

The video above shows Jeff Drake using Nirvana Systems Seasonality Module to look at seasonal market gains and losses. The Seasonality Module can look at any security or index to determine their average performance for certain months, weeks, or even days. For example, we can look at the average performance the first day of the month. Or we can look at performance of the last week of every quarter. And yes, we can also determine the average performance of the week after Christmas and the month of December.

As the video shows, if we look at the performance of the Dow Jones Industrial Average over the last ten years, we do see that the index does average a gain of 0.6% in December. We also see that the index averages a gain of almost 1% the week after Christmas. The S&P 500 also shows gains in those periods, though slightly lower than the Dow, and the NASDAQ Composite Index shows similar gains. We also looked at the major industry sectors to see which one is the strongest (financial stocks) and the weakest (oil and gas stocks) in December.

Now, this information is far from a guarantee for December gains. But it is good to know that the market does usually post gains in December as well as the week after Christmas. While we have yet to see hard evidence that Santa Claus himself exists, we can say that the legend of the Santa Claus Rally is actually true.