Sunday, December 23, 2007

Santa Claus

Technical Phenomena & Annual Events December through January in sequential order

TAX LOSS SELLING: Stocks in down trends are generally exposed to panic liquidation in the last two weeks of the tax-loss selling window. Two examples would be Celestica (CLS) and Talisman (TLM). These stocks will typically rally from Christmas through the new-year mid-January

SANTA CLAUS RALLY: It is a well-known phenomenon, first discovered by Yale Hirsch and published in his Stock Trader's Almanac. During this year-end rally, stocks tend to advance, sometimes sharply, from the day after Christmas to the first two days after New Year's Day.

Several drivers for the Santa Claus Rally:
The end of tax-loss selling.
A tendency for investors to fund IRAs (RRSPs) at the start of a new year.
Financial institutions and mutual funds seeking to be fully invested for the New Year.
Upbeat year-end stock forecasts for a good January (the January Barometer).

This year Santa arrived on Friday December 21, 2007

THE JANUARY BAROMETER: As January goes – so goes the year. Not to be confused with the January Effect that observes the performance of small cap vs. large cap stocks in January.

The "First Five Days" in January indicator holds loosely that the direction of the first five trading days of the year is a valid predictor of the direction of the market for the remainder of the year.

As proof of the indicator's effectiveness, it's proponents look at a 55-year record and state that of 35 "First Five Days" that finished up, the stock market finished up in 30 of those years - an impressive 85% win rate for the Barometer. Caution this is not a money management tool!

No comments: