By Lawrence G. McMillan
Thanksgiving sets off a number of seasonal patterns, although we combine several of them for one trade. The three main seasonal patterns are:
1) post-Thanksgiving bullishness: buy the market at the close of the day before Thanksgiving and hold into mid-December.
2) the January effect: which used to take place in January, but because of traders front-running the system, it now takes place in December. Small caps outperform big caps during this time, so buy the small-cap indices (Russell 2000 – $RUT; IWM, for example).
3) the Santa Claus rally, which encompasses the last five trading days of one year and the first two trading days of the next.
Several years ago, we found that these three systems piggy-back on each other quite nicely. The most efficient trade is to buy...
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