If Santa should fail to call…

Ari Wald, Technical Analyst at Oppenheimer, discusses the Santa Claus Rally and asks whether 2015 will be a cracker for stocks or a complete turkey.

Popularized by the Stock Trader’s Almanac, the “Santa Claus Rally” (SCR) is the seasonal tendency for equities to rally during the last five trading days of the year and the first two trading days of the New Year. This year’s SCR would start December 24th and end January 5th.

Since 1928, the S&P 500 has averaged a 1.8% gain and traded higher 79% (68 out of 86 years) of the time through this seven-day period, versus a 0.2% gain and a 56% success rate during any seven-day period.

However, performance in the next 1 to 2 quarters has tended to be below average when the S&P 500 closes lower during the SCR. For instance, the S&P 500 has averaged a 1.4% loss and a 0.6% loss in the subsequent 3 and 6 months, respectively, following a negative SCR, versus an average 2.8% gain and 5.3% gain, respectively, following a positive SCR. Hence the saying, “If Santa should fail to call, bears may come to Broad & Wall.”