Since the great stock washout of 2014 the S&P 500 and Dow Jones Industrial Average have gone up about nine percent in a straight line. That move is pretty much in line with history says Jeff Hirsch, editor of the Stock Trader’s Almanac. “Seasonally we set up properly,” Hirsch said, adding that the move lower “wiped out a lot of overly bullish sentiment.”
So where to now? According to the almanac we are now smack dab in the middle of the strongest three-month period of the year. Hirsch goes as far as to say that despite that 9% surge since the mid-October lows, this market has room to run... 5-10% kind of room.
There are other buying opportunities between here and the end of the year. “Thanksgiving is a tradable period,” Hirsch notes. “We see these days it’s getting anticipated, get into some weakness early sell into some strength into Thanksgiving or shortly thereafter.
Still, he cautions, let the trader beware. Christmas creep isn't just happening in retail, it's happening in investing as well. As soon as kids come down from their trick or treat sugar high pundits start throwing around the term “Santa Claus rally.” But the term Santa Clause actually refers very specifically the “last five days of the year [and] first two of the new year when the professionals are mostly out there buying...stocks that are beaten down.”
Whatever you do remember that past performance does not guarantee future returns. While the Stock Trader’s Almanac deals with history, the information therein is always changing. Case in point: January. “January used to be the tail end of the best three months of the year,” Hirsch says, but he points out that it has been “taking it on the chin lately.” Perhaps it’s because investors are taking profits from a successful year-end rally or two. It has led him to caution investors that a correction could be coming early in 2015.