Trading The Santa Claus Rally by Michael D. Sheimo
'Tis the season to be jolly and make a profit. What could be finer? Michael Sheimo explores the whys and wherefores of this seasonal phenomenon.
Holiday rallies in the stock market are a fact of life. Various theories abound as to why they occur:
institutional traders don't want any loose cash sitting around for a long weekend, trading houses want to
maintain optimism for the holiday, investors are in a buying mood, a culmination of technical influences
come together near holidays. The cause of a holiday rally can be as simple as institutional portfolio
managers leaving work early. Upon exiting, they leave instructions that are more likely to be made up of
buys rather than sells.
Whatever the reason, the stock market tends to rally at holiday time and you can profit from that
knowledge. Figure 1 shows all holiday markets going back more than three years. The holidays are
designated by a vertical line rising from the baseline up to the graph line. Years are separated by
full-length vertical lines. Most of the holidays show a rally that starts a few days earlier than the holiday
and frequently continues after the holiday has passed. In fact, it is difficult to find a holiday without a
rally of some kind.