Santa Claus

Getting ready for Santa

Please let it not be a lump of coal in my stocking

People who believe in such things as patterns in the stock market have noted that in the "average" December, the Dow Jones Industrial Average (DJIA) rises sharply from 25-December through 31-December. This is affectionately known as the Santa Claus rally. Looking at the chart below, one can see that the rally actually begins about mid-December and really picks up steam the last week.

December DJIA cycle

The pattern typically continues through the first seven days (give or take a day or two) of the "average" January, where it is known as the January effect.

January DJIA cycle

Whatever the reason for these patterns — some say it is the result of trading by big institutional investors adjusting their portfolios to lock in profits and take positions for the next year — they are pretty well established patterns. So why not try to take advantage of them?

I've been stuffing my portfolio with promising stocks. So far this month I have taken positions in more than a dozen stocks while selling relatively few. We'll see if the patterns hold.