Will Year-End Seasonality Hold Up?

Editor's Note: Curtis Bergquist, editor of the PRO Trader service, is filling in for Dave M. this morning. In this report, Curt looks at year-end seasonality.

As you know the market tends to rally in December; up 73.8% of the time (62 out of 84 years) since 1928, inclusive. Also, from previous posts I've done on the subject, you are now aware of the fact that the December historical seasonality has two (2) distinct components: the "Early December" and the "Late December" with the latter period equating to December's last 7 trading days.

Perhaps the most important aspect of year-end seasonality is that the "Late December" period historically has advanced at a pace which is nearly 5 times the average gain historically seen for the "Early December" time frame.

In light of the net decline we have seen for the first 2 days of this year's "Late December" period (through the close on 12/21/12) let's look at things a little closer. For the past 84 years the market has declined 41 times over the first 2 days of the "Late December" period. It has gone on to rally over the next 5 trading days on 36 occasions, or nearly 88% of the time. Out of those 36 years, the 5-day rally was large enough to completely offset the 2-day drop and leave the "Late December" period with an overall gain.

I made some bullish moves last Wednesday near the close due to what appears to be to be a positive set-up for the year-end period. Specifically, the S&P500 had gained over 1.25% for the "Early December" period. When that had happened over the past 84 years the market rose more than 85% of the time during the "Late December" period. Combine this with the above and the odds seem good that we will see the traditional year-end rally.

Now throw in Tuesday's moderate dip and my belief is that we will get some good news regarding the fiscal cliff debate. As such, the picture, in my opinion, gets even brighter. So much so that I went ahead and did some after-hours buying Tuesday to increase my bullish exposure.

However, it should be noted that this continues to be a news-driven environment based on anything and everything surrounding the fiscal cliff.

  S&P 500 - Last 12 Month

Have a good one...

Curtis Bergquist
Manager – PRO Trader Service

Curt is bearish on the macro view but is trading on the long side at the present time. Wondering what Curt’s next move will be? Take a Free Trial of The PRO Trader Today

 

Turning to this morning... The vast majority of the world's markets remains closed today. Word that President Obama is returning from his $4 million Hawaiian vactaion early to work on the fiscal cliff has provided the futures with a modest lift.

On the Economic front... We will get reports on Case-Shiller Home Price Index and the Richmod Fed this morning.

Thought for the day... Learn to trust in an idea whose time has come...

Positions in stocks mentioned: none

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