What is the Santa rally?
Let’s get the obvious question out of the way and then we’ll talk about how to trade the Santa rally in 2019. As the name suggests, this is a seasonal market occurrence which takes place in December. Basically, the stock markets go up in December a lot more than they go down.
Why does this happen? There’s no concrete reason but there are a few common possibilities which are often spoken about.
- ‘Seasonal goodwill’ amongst investors.
- Lower trading volumes resulting in greater than usual movements
- Large funds being re-balanced at the end of the year
- Xmas bonuses being invested
- Self-fulfilling prophecy
Santa Rally Data
So what actually happens? Let me give you some hard numbers and clear up some misconceptions.
When will the Santa Claus rally 2019 start?
So should you just go long on the 1st of December?
No!
The Santa rally doesn’t usually start until mid-month.
The average return between the 30th of November and 15th of December yielded an average loss of a -0.23% loss.
That leaves us looking between the 15th and 31st of December for the rally.
You can’t just ‘go long’ or buy (sometimes you’d get away with it), you need some trading strategies to get on board of the potential moves to make profit. I’ll provide you with some later.
FTSE Santa rally 2019
The FTSE 100 has been one of the historically most reliable riser in the later part of December.
This is the data from the 15th to 31st of December in ever year of the FTSE 100 on a graph. It rallies nearly 85% of the time. This is the strongest repeated two week period in the FTSE’s history.
Similar rallies can be seen on other stock markets across the world (stock markets are often correlated with one another based around global sentiment / macro-economic circumstances).
The US’s S&P 500 and DJIA 30 are two ones to watch, as well as the German DAX 30. They have also seen similar historical performance gains over the last two weeks of the year.
The one/s you should trade should really be the one that presents the best trading setups.
It is worth noting that in 2019 the SPX and DJIA have been much stronger at trending than the FTSE and DAX.
The charts below are the FTSE (top left), DAX (top right), SPX (bottom left) and DJIA (bottom right) all set to display weekly time frames i.e. each candle represents a week.
Compare the FTSE to the others, especially the SPX and DJIA. It has been a lot more sideways whereas the others have rallied nicely.
11 months of trading gives us a clear idea as to how confident traders and investors are in their respective markets.
At the moment the US / German stock markets look a better bet, but then again the FTSE could be under-valued. We’ll rely on the the strategies and setup to give us an indication of what we should be trading.
Was there a Santa Rally in 2018?
Let’s just say Santa wasn’t in a good mood. In fact he was rather mean and brought everyone lumps of coal and misery.
Look at the FTSE graph above, you can see last year was the worst December in history for the FTSE, closing down -1.71%, which was over 600 points from it’s December high.
If you think this was bad just think about the investors who lost money in the US markets. The S&P was down over 16% at its worst, but recovered to a pretty terrible -9.18%
Ouch, let’s hope that doesn’t happen this year!
December 2019 Santa Rally trading risks
There are still a fair few risks to be considered. The most obvious one are the seemingly endless US vs China trade wars.
Trump is an unprecedented President for various reasons, but the one we’ll focus on here is his willingness to Tweet information that can have a major and instant impact in the market.
At any time – and I’ve lived with this crap as a professional trader for the last couple of years – the moron President may Tweet something that causes significant volatility.
Of course it takes two to tango, and there is sometimes news from the Chinese side – retaliation tariffs or whatever, that can also cause serious volatility.
Strategies to trade the Santa Rally in 2019
It’s one thing having this historic data behind us which gives us a trading idea it’s another thing being able to trade that idea. This is where our trading strategies come in to play.
Now for the potential Santa rally in 2019, we are interested in breakouts and swing trades. You can read the whole of those articles after this, or watch these videos below which sum up both of the strategies rather nicely.
These are the strategies that i’ll be looking to use to trade any Santa Rally in 2019.
Conclusion
There’s solid historical evidence there is a Santa Claus starting on the 14th of December and ending on the 31st of December across the world’s stock markets.
However, that’s not enough on its own. You need a profitable trading strategy to get on board with the potential market moves whilst still managing your risk. I have provided you with two above you should watch and read about.
I recommend trading the FTSE, DAX, DJIA and S&P as they’ll present the best opportunities if there is a Santa Rally in 2019. We’ll be looking to trade any rally in our live trade room throughout December.
If you have any questions then please contact me below on WhatsApp or Telegram.
Good luck!