Christmas 2021 has come and gone, and now we enter the Santa Claus rally period. Will the markets end the year with good cheer? We’ll know soon enough.
The Santa Claus rally period is here
The Santa Claus rally period always covers the last five trading days of the year and the first two of the new year. This year, those dates span December 27 through January 4, and they could indicate what’s to come in 2022.
Legendary trader and prolific author Yale Hirsch famously observed that if markets are higher during this seven-day period, the year ahead would be a bullish one. Sixty percent of the time, this is the case. So though the period is a fairly reliable indicator over the years, it is far from 100% perfect.
Another anecdotal calendar sequences posits that if the first five trading days of the year are positive, January and entire year will be positive, too. Like the Santa Claus rally, this is based on historic trends. Unfortunately, history doesn’t always repeat itself.
How to trade on these calendar anecdotes
In two words: You can’t. You need evidence of a trend first, which means you must always defer to what the chart and technicals are saying. Is there a pattern of higher highs and higher lows? Are breadth and volume trends positive? Is price action flashing a bullish or bearish sign? How about the MACD and relative strength?
Trying to game the market based on calendar anecdotes is a recipe for doom. Could you be successful at it? Sure, just like flipping a coin you have a 50/50 chance of getting it right.
Using technical analysis and following the market trends will give you a far better edge. If Santa Claus spreads cheer, you’ll be well positioned to earn some nice gains in just a few days.