Much has been written about the Santa Claus Rally (for instance here). But even this period often has its own “personality”. So let’s take a closer look.
The Periods
There are four “Periods” to the Santa Claus Rally. Specifically:
- Period 1: The last 6 trading days of November
- Period 2: The 1st 6 trading days of December
- Period 3: December trading days #7 through #11
- Period 4: December trading day #12 through the end of the month
For our test we will use daily price data for the Dow Jones Industrial Average starting on 12/31/1933 and look at each period separately and together.
Figure 1 displays the growth of $1,000 invested in the Dow only during each of the four Periods listed above.
Figure 1 – Growth of $1,000 invested in the Dow during each pas o the Santa Claus Rally Periods 1, 2, 3 and 4;1934-2016
*Period 1 (Blue) was choppy into 1950 and has been mostly trending higher ever since.
*Period 2 (Red) had a down swing from 1974 through 1985 but mostly higher the rest of the time.
*Period 3 (Green) has some upswings here and there but has been underwater since the very beginning. This is the weakest of the four periods.
*Period 4 (Purple) has been the strongest of the four periods and has tripled in value since 1933.
The “Bullish” Periods
Since Period 3 has been consistently underwater since the beginning let’s designate Periods 1, 2 and 4 as “Bullish”.
Figure 2 displays the growth of $1,000 invested only during Periods 1, 2 and 4 each year since 1934 – including so far in 2017 (in other words, we are in the market for the last 7 days of November, the first 6 days of December and during December trading day 12 through the end of the year, and out of the Dow during December trading days #7 through 11).
Figure 2 – Growth of $1,000 invested in Dow Jones Industrials Average ONLY during Favorable Periods 1, 2 and 4 of the Santa Claus Rally; 12/31/1933-12/6/2017
Figure 3 displays some comparative numbers for each of the individual periods and the combined bullish periods.
Figure 3 – Facts and Figures; 1934-2016
Summary
In 2017, Period 1 ended on 11/30/17 with a gain of +2.9% for the Dow. As this is written there are two days left in Period 2. At this point Period 2 is showing the Dow down -0.38%. So combined these two are showing a net gain of +2.5%.
Will the Dow rebound during Period 2? Will Period 3 show a loss? Will Period 4 show a gain thus locking in another Favorable Periods 1, 2 and 4 Santa Claus gain?
Stay tuned.