One tradition I like to keep to when it comes to trading the markets, is buying the Santa Claus rally in South Africa.
Each year, I write to you about it and it most times, ends up being extremely profitable.
But this year, I thought it was going to be different.
I started to feel doubt and pessimism with the whole COVID-19 pandemic destroying the economies one by one.
And this year, I thought Santa would give us a lump of coal this year.
That was until November. Suddenly, the spirits picked up and the markets made a sudden turn.
Right now, I'm feeling super bullish and I believe Christmas couldn't have come at a better time for the stock markets.
In this article, I'm going to tell you five main factors why we could have yet another positive and profitable December.
Let's start with…
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What the Santa Claus rally is…
The Santa Claus rally, in a nutshell, is when stocks see sudden price rises and strong gains near the end of December and in early January.
And when stocks rally, this drives up the actual stock market indices as well.
According to the 2019 Stock Trader’s Almanac, there’s an average 1.3% market rally in stocks, during this time that has taken place 75% of the time since 1969.
We are not 100% sure why the stock market ends positive during the last few days of the year, but here are my five reasons why we can expect yet another Santa Claus Rally on the JSE.
Christmas Rally Reason #1:
Vaccine trials are looking super positive
Optimism and investor confidence is flooding the markets once again, driving both markets into the green.
Pfizer and Moderna have almost completed their vaccine trials with over 40,000 participants, showing an effective rate of over 90%.
And they're almost ready to mass produce and cure the world from the ongoing pandemic.
This includes South Africa.
In fact, Johnson and Johnson started their vaccine trials as of last week. And the markets have just been moving up and up.
In fact, in the last month the JSE has rallied over 13% which gives us a good chance of finishing off positive for the year.
Christmas Rally #2:
Markets are loving Joe Biden
Markets are loving the idea of a Joe Biden administration.
With Joe Biden becoming the next US president, we've seen both local and global markets rally double digits for the year.
In fact, the JSE has turned green for the year.
Christmas Rally #3:
Investors are cutting down on taxes
In December, you'll see both investors, portfolio managers and companies selling a bunch of their stocks.
They do this to lock in tax reductions before year end.
They then take the opportunity to buy other stocks and markets that they believe will rally in the next year.
This buying leads to stock prices pushing up which makes the indices rally as well.
Christmas Rally #4:
Investors splurge with their bonuses
At the end of the year, investors are paid their performance bonuses as an extra incentive.
This gives them the perfect opportunity to invest and pile their money into stocks.
And this leads to higher market prices.
Now… here’s the main reason I believe in the Santa Claus rally.
Christmas Rally #5:
You have a 70% chance of profiting this December
The proof is in the charts.
What you see, is the monthly JSE-ALSI Top 40 Index chart.
Looking at the chart you can see how each December (Vertical blue line) performed from 2003 up ‘till 2019.
We can see that the ALSI 40 has ended up 12 out of 17 Decembers since 2003.
So, there’ve been 12 out of 17 Decembers (70%) that have shown positive gains. And in total, the JSE has accumulated 32.58% gains in all of those Decembers.
This means, you have a higher chance of profiting from buying this Christmas than selling.
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I'll be Santa Claus this year for you
I'm sure you're wondering if I'm going away on holiday this year?
The answer is YES! I'm off to Suncity, Durban and Cape Town for a few weeks.
But no ways am I leaving you behind.
I'll be working and scouring the markets just as hard, looking for high profit trading opportunities.
However, there's only one place you'll find these urgent trade alerts.
Managing Editor, Trading Tips