We call this daily note Everybody’s Wrong for a reason: There’s always a crowd leaning the wrong way.
And as investors, our only job is to recognize those dislocations and profit from them.
This summer, when small-cap short interest hit its highest level ever, we were buying small-cap stocks.
Last fall, when everyone insisted a Trump win would be “bad for China,” we were loading up on Chinese stocks.
I could keep going, but you get the idea.
So where’s everybody wrong today?
They think the Santa Claus Rally has already started. It hasn’t. The Santa Claus Rally period doesn’t even begin until December 24 this year.
And over the next few weeks, you’re about to see a ton of people butcher that simple fact.
If Santa Should Fail To Call…
All the data on the Santa Claus Rally comes from Yale Hirsch and the “Stock Trader’s Almanac” — one of my all-time favorite market resources.
If you don’t own a copy of this year’s almanac, fix that. The best portfolio managers I know keep it within arm’s reach.
I’ve been doing the same for almost 20 years.
And here’s what Hirsch made very clear: The Santa Claus Rally does not start after Thanksgiving. It does not start in early December.
It has a specific definition.
The Santa Claus Rally is a seven-day window: the last five trading days of the year plus the first two trading days of the new year.
That’s it.
Historically, stocks tend to rise during this stretch, averaging a 1.3% gain with a 76% win rate.
And that’s why the old line goes, “If Santa Claus should fail to call, bears may come to Broad and Wall.”
Meaning, if stocks don’t rally during this seven-day period, trouble may be coming to the corner of Broad Street and Wall Street, which is the location of the New York Stock Exchange in Lower Manhattan.
Down Santa Claus Rally periods often show up before bad markets or better buying opportunities later in the year. Think 1994, 2005, 2015… and the brutal bear markets of 2000 and 2008.
In my experience, it’s less about trying to capture the seasonal strength, and much more about paying attention when Santa doesn’t show.
This Year’s Santa Claus Rally Period
The dates shift every year depending on weekends and market holidays. This year, the Santa Claus Rally officially kicks off on December 24, Christmas Eve.
The NYSE is closed on Christmas Day, so Day 2 is December 26.
The weekend doesn’t count, so the period resumes on Monday, December 29, runs through December 31, pauses again for New Year’s Day, and then finishes up on January 2 and January 5.
That’s your full seven-day window.
Historically, stocks tend to rise during this stretch — and we’ll position accordingly. We don’t fight trends at TrendLabs. We ride them.
But if Santa doesn’t show, we’ll be ready for that too.
Part 1 of the Trifecta
The Santa Claus Rally is the first piece of Yale Hirsch’s January Trifecta, followed by the First Five Days and the January Barometer.
When all three fire bullishly, market returns tend to be nothing short of spectacular.
We’ll dig into the other two signals when the time comes.
For now, I want you to understand how we think about the turn of the year — and how much information the market hands us if we’re actually paying attention.
And here’s the key point: Santa hasn’t shown up yet. He won’t for another three weeks.
The Santa Claus Rally doesn’t start until December 24.
So when you see people out there already calling it, do them a favor: Send them this note and tell them to stop embarrassing themselves.
See you on the 24th, Santa. And if you’re a no-show?
We know exactly what to do.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs