By Time to Feast Thanksgiving-Santa Claus Rally Trade
Market action this past week and today has set up this annual
market feast. Stocks have consolidated October’s big gains in typical
early-November fashion setting the market up for the perennial yearend
rally.
Thanksgiving kicks off a run of solid bullish seasonal
patterns. November-January is the year’s best consecutive 3-month span (2023
STA p 149) and as we have been discussing all year we are at the outset of the “Sweet
Spot” of the 4-Year Cycle (2023 STA p 34). Then there’s the January Effect (2023
STA pgs 112 & 114) of small caps outperforming large caps in January, which
nowadays begins in mid-December.
And of course, the “Santa Claus Rally,” (2023 STA p 118) invented
and named by Yale Hirsch in 1972 in the Almanac and often misunderstood, is the
short, sweet rally that runs from the last 5 trading days of the year to the
first two trading days of the New Year. Pop also coined the phrase: “If
Santa Claus should fail to call, bears may come to Broad and Wall.”
So, we have combined these seasonal occurrences into one
trade: Buy the Tuesday before Thanksgiving and hold until the 2nd trading
day of the New Year. Our good friend and renowned technician and options guru Larry McMillan of the Options Strategist
opened our eyes to this trade and runs it with options on iShares Russell
2000 (IWM) starting on the day before Thanksgiving.
