Waiting for Santa Claus

Mrs Claus

But will it be goodies or a lump of coal?

There is a phenomenon in the stock market called the Santa Claus rally. While stocks typically go up in the last five days of the month, stock prices typically go up much more during the last five days of December.

December Santa Claus rally
December Santa Claus rally (source: Dogs of the Dow)

Looks like the Dow Jones Industrial Average (DJIA) didn't get the memo this year. The DJIA has been climbing steadily since the beginning of December, having breached the 10,000 level for the first time in over a year.

DJIA for first 15 days of December 2003
DJIA for first 15 days of December 2003
Nasdaq for first 15 days of December 2003
Nasdaq for first 15 days of December 2003

The Nasdaq, on the other hand, seems to be sinking, right on cue. I, for one, am definitely hoping the Santa Claus rally materializes this year! I got caught not paying attention when the market pulled back in September and then again in October. Whereas during the first nine months of the year I normally had one or two stocks in my portfolio at any one time that were not showing a profit, I now have much the reverse.

Not that I'm bellyaching — if I liquidated everything right now, the value of my trading account would still be more than 2½ times what it was at the beginning of the year. It's just that I'm disappointed with myself for having allowed the current situation to develop through a surplus of wishful thinking: they'll go back up again soon.

On the other hand, a few write-offs would not be a bad thing either. I've made far more money in the market than I ever expected to make, and Uncles George and Arnold are expecting hefty checks from me at tax time. Taking some losses would make those checks smaller.

Needless to say, I'm going to be watching carefully once the fat guy in the red suit has climbed down the chimney.

Holiday strategy of investing

People who study the market have noted that prices almost always fall on the day before a holiday and have worked out an investing strategy based on that phenomenon. The theory is that if you buy stocks on the day before a holiday and hold then until the end of the year, you will make money.

I decided to test the theory for myself. On the day before Thanksgiving, I bought two stocks that looked promising. So far, one of them is up 8%. The other is down 5%.

Go, Santa Claus, go!