🎅 Preparing for ‘The Santa Claus Rally’: Why December Stands Out in the Stock Market 📅

[Image] 🎅 Preparing for ‘The Santa Claus Rally’: Why December Stands Out in the Stock Market The "December Effect" refers to the tendency for stock prices to rise during December. You may also hear people calling it the "Santa Claus Rally." This month is usually one of the best-performing periods of the year for the SPDR S&P 500 ETF Trust (NYSEARCA: SPY). Specifically, from the final five trading days of the year up to the first two trading days of January—we often see a predictable rally in stocks. These seven days alone have historically shown higher S&P 500 prices [79.2%]( of the time. And I’m telling you this now so that you have time to prepare. But why does this happen? And how can you utilize this information to potentially improve your December trading performance? Keep reading and I’ll show you… What Causes the December Effect? While nothing in trading is a perfect science, market experts point to several possible reasons behind this seasonal trend: Tax-Loss Harvesting Towards the year's end, traders and institutions often sell stocks that have declined in value throughout the year to realize losses for tax purposes. This selling pressure typically subsides by December, leading to a rebound in stock prices as these investors reinvest in the market (more on that in a minute)... Holiday Optimism The festive mood and general optimism around the holiday season can positively influence investor sentiment. This increased optimism can lead to more buying activity in the markets. Grandpa might buy the little ones some stocks for Christmas… Year-End Institutional Strategies Many institutional investors—like the mutual funds and hedge funds I worked for on Wall Street— adjust their portfolios at the end of the year for accounting and reporting reasons. This often includes buying stocks that have performed well throughout the year, which can drive up the share prices of the year’s biggest winners… (I’m looking at you, ‘Magnificent Seven’…) Bonus Investments December is also a time when many people receive year-end bonuses from their employers and other financial gifts. If these people are forward-thinking, a portion of their bonuses might be invested in the stock market, contributing to increased buying pressure. Lower Trading Volumes Trading volumes often decrease in December as many traders and investors take time off for the holidays. This lower volume can lead to increased volatility and sometimes amplifies the upward movement in stock prices. Anticipation of “The January Effect” Traders often use December as an opportunity to front-run the "January Effect," where small-cap stocks tend to outperform the broader market. And to capitalize on this potential January rise, retail traders often buy more stocks in the weeks prior, contributing to the overall upward trend in the market during December. How to Prepare for the Santa Claus Rally As we’ve established, December is generally a bullish month for the stock market. But the past two years have been unusual, laying a backdrop for a potentially surprising December. Let me explain… On average, the SPY gains 9% per year. But 2022 and 2023 sang different tunes. In 2022, the SPY ended the year 19% in the red as the market digested the effects of the biggest annual interest-rate surge in 40 years. In 2023, we’ve seen a rip-roaring reversal to the upside. The SPY is up 20% YTD, sitting just below its all-time high, having erased all of 2022’s losses. SPY 2-year daily chart — courtesy of [StocksToTrade.com]( All of this tells me that, this year, we need to take extra caution when approaching a potential December rally. Based on this year’s price action, I expect any December surge to be concentrated in the biggest winners of 2023—stocks like Nvidia Corporation (NASDAQ: NVDA), Coinbase Global Inc. (NASDAQ: COIN), Meta Platforms Inc. (NASDAQ: META), and Apple Inc. (NASDAQ: AAPL). But I think that attempting to chase this upside will be difficult. The price action will be uneven. In my view, the better route is to position yourself to profit off of the downside of these stocks fading into early 2024. That said, timing will be crucial here. You don’t want to be short a basket of stocks that soar throughout December. But as we get closer to the holidays, it’ll become more and more intriguing to think about buying puts on some of 2023’s most high-flying stocks. Closing Thoughts As you can see, December is usually a very strong month for stocks. Keep this in mind as you trade this month, but don’t get caught chasing the uneven price action of a fleeting rally/ Look for ways to position yourself to benefit from the unwinding of the rally. Take things day by day, pay attention to the trading volume, and stay nimble in case the market does something unexpected (which it often does)! As always… Stay Street Smart, Jeff Zananiri P.S. Discovery how Tim Sykes’ brand-new AI trading algorithm—XGPT—is crushing the markets! Don’t miss out … Secure your seat NOW for the EXCLUSIVE LIVE TRAINING SESSION by [CLICKING RIGHT HERE!](   66 West Flagler Street STE 900 Miami, Florida 33130 United States [Facebook]( [Twitter]( [Instagram]( [YouTube]( [Click Here to Unsubscribe]( **Our gurus teach skills others have used to make money. Any results displayed are extraordinary and are not typical and will vary from person to person. 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