Expecting a Santa Rally?

18 December 2018

Christmas is just one week away.  Many people in the stock forums are expecting a Christmas or a Santa rally.  Some took the chance to buy stocks that have been badly beaten,  hoping to make some money.   But will there be a Christmas & New Year rally?   Lets examine the past 4^thquarter performance records of DOW in this article.

 

DOW @ Present

DOW just suffered one of the it's worst falls since 2008,  losing more than 4% in the last  2 straight trading days.   It has created 4 candlestick gaps and about to make a dreadful double top pattern to fall to 21,000 once it fall below 23,500.    

Why US Market Slump?

The markets are worrying about the following

• Rising interest rates making borrowing more expensive
• Slowing global  economic growth and weaker  China growth
• Possible failing of Brexit
• Rising of Italy’s budget crisis
• Looming end of quantitative easing in Europe
• Worrying U.S.-China trade relations
• Slowing sign in earning growth of U.S. companies
• Growing US deficits
• Weakening banking and transport sectors
• Falling housing markets

Will there be a Christmas Rally?

 Let examine the following table,  tabulating the 4^th Quarter performance of DOW in the last 90 years from 1928 to 2018:

Last Quarter Performance						Date: 18 Dec 18
	Year	DOW @ 1st of 4th Qrt	DOW @ date of record	DOW @ end of year	Gain/(Loss) Qrt to Date (QTD)	% Gain/(Loss) from date to end of year	% Gain/(Loss) @ end of 1st Qrt next year
1	1929	343	250	248	(27.14%)	14.63%	17.16%
2	1987	2,639	1,924	1,939	(27.08%)	3.31%	(1.35%)
3	1931	96	74	78	(22.86%)	(0.69%)	2.36%
4	1930	214	166	165	(22.67%)	4.08%	1.48%
5	1937	154	125	121	(18.79%)	(20.83%)	(17.93%)
6	2008	10,831	8,824	8,776	(18.53%)	(13.77%)	(15.78%)
7	1932	71	61	60	(15.01%)	(8.46%)	(6.56%)
8	1973	949	811	851	(14.51%)	4.38%	(1.01%)
9	1941	127	109	111	(13.79%)	(8.99%)	(11.74%)
10	2018	26,651	23,593	?	(11.48%)	?	?
11	2011	10,655	11,866	12,218	11.37%	11.34%	6.57%
12	1982	908	1,012	1,047	11.43%	11.72%	10.03%
13	1934	90	101	104	11.62%	(0.14%)	(3.57%)
14	2001	8,837	9,892	10,022	11.94%	5.18%	3.28%
15	1928	240	270	300	12.59%	14.29%	0.60%
16	1962	572	645	652	12.86%	5.74%	5.52%
17	1985	1,341	1,545	1,547	15.18%	17.75%	18.27%
18	1998	7,633	8,876	9,181	16.29%	10.26%	6.55%

It can be seen from the table that DOW has 10 occasions where its prices have fallen more than 10% in the 4^th Quarter to 18 December.   DOW has also 8 occasions where  its prices have risen more than 10%.

In all these 10 losing occasions, ,  we observed the following:

1.  The fall in 2018 is the smallest @ around 12%; 

2.  The biggest fall on 1929 seen price fallen by about 30%;

3.  It is expected that when there is a bigger action,  there will be a big reaction.  In other words,  the bigger the fall,  the higher will be the rebounce for Christmas and New Year rally and also a better  performance in 1^st quarter of the coming years;

4.   However,  when there is a fall less than 20% in 4^th quarter ,  the coming 1^st quarter performance will not be good.

Conclusion

Bearing unforeseen circumstances such as a cut in the Fed’s interest rate, it is very likely

1.  We would not have a good Christmas and New Year rally.  Even if we do have one,  it would be a mild one; 

2.  Do expect a lackluster 1^st quarter in 2019.

Disclaimer:  This article is for information and  educational purposes.   Readers are advised to  conduct their own research and study to make their  own investment decisions.


==================================================================
tinyurl :   https://tinyurl.com/y7jv493o