Binary bets of the week: Santa Could Still Come To The Rescue?

One of the oldest stock market anomalies is the so called ‘Santa Claus’ rally which runs that stock markets perform better during the Christmas period, but is this true and is it worth money in real terms?

Part of the Santa Claus effect comes from the well-researched and robust winter v summer stock market out performance. Studies have shown that as far back as the 1700s, stock markets have tended to out perform between November and April and generally fall flat between May and October. Any month during this period is likely to outperform, but December in particular has its own quirks.

CXO (http://www.cxoadvisory.com/) for example found that markets tend to rise for the first third of the year, flatten for the next six months then lift off for the last two months of the year.

Their chart below plots the trading day of the year against cumulative gains. You can see that regardless of the era (or whether the year was odd or even!) the final days of the year tend to rally.

Trading day of the year performance from CXO Advisory

December in particular tends to see a rally in the second half of the trading month.

Chart again via CXO Advisory:

December so far

So far December has not been positive for the S&P 500, with the index down around 1.89% at the time of writing. This comes in the context of a solid year for stock markets, with the S&P 500 up around 10% year to date. Not too bad at all considering the various geo-political issues at play throughout the world.

S&P 500 Daily Chart:

Looking out even further, the S&P 500 rally we’ve seen since 2011 is still alive and well. We’ve had dips, but not a single close below the 10 month moving average.

S&P 500 chart with 10 month moving average

Yes stock markets are still over bought judging by various valuation metrics such as the cyclically adjusted P/E 10, though these metrics tend to come into play when sentiment and valuation coincide.

Longer term, it would be wise to be cautious in relation to this rally, but until the end of the month there’s a fair chance of markets stabilising, if not rallying. This is especially the case with US UoM consumer sentiment coming in at its highest levels for eight years this Friday.

A  good way to play this is a HIGHER trade predicting that the S&P 500 will push higher and close above 2050 in 25 days time. This could return 110% if successful at the time of writing. Or put another way, betting that the S&P 500 will close above 2025 on January 6th could return £21.19 for every £10 put at risk.

Disclaimer: This financial market report is intended for educational and information purposes only. It should not be construed as investment or financial advice and you should not rely on any of its content to make or refrain from making any investment decisions. Binary.com accepts no liability whatsoever for any losses incurred by users in their trading. Fixed odds trading may incur losses as well as gains.