The Santa Claus Rally (SCR) has officially ended with the bulls winning by almost 1/2%. That’s supposed to portend positive things for the year ahead. However, as with most Wall Street adages and assumptions, it just stand up to scrutiny when doing the research. First, let’s remember that during most long-term periods, stocks rise at least 2 out of every 3 years, so a permanent kind of tailwind to support the bulls.
As I started to update the stats on the SCR, my friend, Tom McClellan (of Summation Index, Oscillator and newsletter fame), emailed me his findings which I will quote as he rarely makes mistakes. A positive SCR foretells an up year for stocks 68% of the time since 1928. Excluding the Great Depression decade, that figure rises to 74% versus 72% for any random year. Since 1980, an up SCR leads to higher year 80% of the time versus 75% for any random year since 1980.
On the flip side, for those curious, since 1928, the odds of any year being down are 34%, 28% since 1941 and 25% since 1980. A negative SCR has correctly predicted the full year being down, 42% since 1928, 33% since 1941 and 36% since 1980. While the negative SCR correctly called for 2008 to be down, it failed to forecast 2000, 2001 and 2002 being lower.
What seems so powerful on the surface is just barely better than random when looking into the details on the upside and downright poor in predicting a negative year.
If you would like to be notified by email when a new post is made here, please sign up HERE
