Happy 2021!
Posted on Monday, December 28th, 2020
This is what we had to say last week on the famous Santa Claus Rally. The term “Santa Claus Rally” is a phenomenon, popularized by Yale Hirsch’s The Stock Traders Almanac, which strictly refers to the last five trading days in December and the first two trading days in January, in which the S&P 500 has enjoyed an average gain of 1.3%. The key nugget to take away from the Santa Claus Rally is if, in fact, Santa does not arrive. We are in a market that is tilted in favor of the bulls. If the bulls cannot sustain that rally at this joyous time of year we could see that overdue pullback we’ve been looking for.
As Yale Hirsch once famously said, “If Santa Claus should fail to call; bears may come to Broad & Wall.” According to the Stock Trader’s Almanac, Santa failed to show 6 times since 1994. Only 6 times in the last 26 years did the market not rally during this 7-day period. Of those, we saw 3 flat years (’94, ’04 & ’15), 2 very nasty bear markets (’00 & ’08) and a mild bear that didn’t end until February of 2016. Needless to say, they weren’t good times for shareholders.
According to that same Oppenheimer study, 6 months into the new year the S&P500 is up on average of 5.3% when Santa shows up (if stocks rally during this 7-day period). However, when Santa doesn’t show, the S&P 500 is down an average of -0.3%. (h/t JC Parets All Star Charts)
The CNN Fear and Greed Index has fallen from 89 three weeks ago to 54 last week. That takes us out of the Extreme Greed category to a Neutral setting. This late in the calendar not much is stirring in the markets. Investors have made all of the moves that they are willing to make and just want to settle in, enjoy the last few days of 2020 and be ready to start 2021. No sense in making heavy bets risking your year in an illiquid market. The one place that creatures have been stirring is in the crypto-currency market. Bitcoin has been on a tear all weekend and is currently north of $27,000. Markets are expensive and speculation is rampant but the market has had time to digest recent gains and the central bank support will not end in 2021. In fact, it may increase. Let’s see what Santa brings.
Merry Christmas and Happy New Year!!
Here’s to a happy and a bit more normal 2021!
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.