U.S. Markets closed

The Santa Claus Rally Isn’t What You Think: Hirsch


It might not be the most disappointing thing you've ever heard in regards to Santa Claus, but Jeff Hirsch of the Stock Trader's Almanac has some disappointing news for those still waiting for the eponymous rally to save the markets.

"Everybody likes to say any sort of year-end rally is the Santa Claus rally," says Hirsch. "The Santa Claus rally is the last five days of the year plus the first two days of the next."

Now that I feel like a dolt for laying out rally cookies and milk next to the money tree in my living room for the last two weeks Hirsch is free to explain what I'm supposed to do with this new information.

For one thing I can better focus my book. Hirsch says that his version of the rally is shorter in time but makes up for it with returns and powers of prognostication. On the return front, the average gain during those seven trading days has been 1.5 - 1.7% for the last half century. However, if the market fails to rally, Hirsch believes that in itself is telling.

"If Santa Claus should fail to call bears may come to Broad and Wall (Street)," says Hirsch.  In 1999 and 2000, as well as 2007 - 08 were recent harbingers of doom when investors would have been well-served to heed.

Hirsch himself notes the limitations of basing an investing strategy on seven trading days. It's data mining, and as Hirsch puts it "if you torture numbers long enough you can get them to say anything." What these numbers are telling us is we best pay at least some attention to the trading at the end of next month.

Before blithely dismissing the data look at the tape for the last decade and 2011 in particular. It's not really the place of any investor to start getting snobby about their foolproof methodology, now is it?