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Get ready for a Santa Claus rally in the markets: Strategist

Talking Numbers

The markets are down off its record highs. But, says one strategist, December is a reason to be positive in the markets.

The S&P 500 continues its longest losing streak since September. After reaching record highs last week, the market's benchmark index is down 1% and below the psychological 1800 level.

CNBC contributor Gina Sanchez, founder of Chantico Global, says recent data are showing encouraging signs for the economy, particularly with employment. Payroll processor ADP reported an addition of 215,000 jobs in the month of November, 42,000 higher than the average economists' estimates. As well, October figures were revised up by 54,000 to 184,000.

"I think the market conditions are getting better," says Sanchez. "The ADP number is definitely a fantastic number. If you look at revisions for October, that was also very strong."

Sanchez also sees positive indicators for the labor market in recent auto sales statistics. Though Honda and Volkswagen were down, the Big Three US automakers and Toyota were up sharply.

Automaker November sales increases
Chrysler 16%
General Motors 14%
Toyota 10%
Ford 7%

"Auto sales tend to correlate very highly with labor markets," says Sanchez. "And we had great auto numbers. So, there are a lot of reasons to be quite positive."

(Read: Auto rates drop, buyers take on record loans)

But with positive news comes the increased potential for the Fed to taper its $85 billion monthly bond-buying stimulus program known as "quantitative easing" ("QE"). That could negatively impact the markets by as much as 5%, according to Sanchez.

"If you look at quantitative easing – the buying and the expansion of the federal balance sheet over the last year – and you chart that right next to the S&P 500, there is a very strong correlation," says Sanchez. "Some of this P/E expansion [the increase in price relative to earnings] has certainly been explained by quantitative easing. So, any taper will definitely take a notch out of the S&P."

However, Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, says the calendar generally offers hope this time of year.

"From a seasonal standpoint, the S&P remains in an outstanding seasonal position," says Ross. "In fact, we are in the sweet spot of the strongest three-month period of the year which began in November and runs through January."

(Read: Stocks stay under water as Beige Book points to modest expansion)

"Take it one step further – December, the single best performing month for the S&P 500 and the Dow [Jones Industrial Average] going back to 1950," says Ross. "That's some pretty strong statistics."

Ross doesn't base it on the calendar alone, though. "When you back that up with the technical structure of the chart, it also suggests to me that significant upside remains," says Ross.

"I do see a Santa Claus rally; 1.7% your average return going back to 1950," says Ross. "Right now, we're down on the month so we could see another 2% upside, perhaps another 36 S&P points. You want to be a buyer on this little mini pullback."

To see the rest of Sanchez's fundamental analysis and Ross' technical analysis on the S&P 500 index, watch the video above.

More from Talking Numbers:

Brace for higher rates: Strategists
Four big reasons to stay away from gold: Strategists
Tesla is headed to $160 at a minimum: Strategist


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