Seasonal Trading Bonanza (Preview)

By Lawrence G. McMillan

If you enjoy seasonal trading patterns, they abound from the end of October (the “October Seasonal,” which was strong this year), through the beginning of the new year (the “Santa Claus” rally). Over the years, we have combined three different late-year seasonal patterns into one trade.

The three patterns are as follows:

  1. The Post-Thanksgiving bullish period: One buys at the close of trading on the Wednesday immediately preceding Thanksgiving and holds into mid-December.
  2. The January Effect (whereby small cap stocks outperform big-cap stocks). Thirty years ago, this Effect took place in January, but since it was successful, traders began to try to get a “jump” on the system, moving it forward in time – to the point where the January Effect now takes place in mid-December.
  3. The Santa Claus Rally: so named by Yale Hirsch, encompasses the last five trading days of one year and the first two trading days of the next year. This is normally a highly bullish period. However, if it is not, then there can be negative implications for January. Or as Yale put it “If Santa Claus fails to call, Bears may come to Broad and Wall.”

Via backtesting and research, we determined...

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