As defined in the Stock Trader’s Almanac, the Santa Claus Rally (SCR) is the propensity for the S&P 500 to rally the last five trading days of December and the first two of January an average of 1.4% since 1950.

The lack of a rally can be a preliminary indicator of tough times to come. This was certainly the case in 2008 and 2000. A 4.0% decline in 2000 foreshadowed the bursting of the tech bubble and a 2.5% loss in 2008 preceded the second worst bear market in history.

Including this year, Santa has paid Wall Street a visit 53 times since 1950. Of the previous 52 occasions, January’s First Five Days (FFD) and the January Barometer (JB) were both up 28 times. When all three indicators were positive, the full year was positive 26 times (92.9% of the time) with an average gain of 17.8% in all years.

A positive SCR is encouraging and further clarity will be gained when January’s First Five Days Early Warning System (page 14, STA 2017) gives its reading next week and when the January Barometer (page 16, STA 2017) reports at month’s end. A positive First Five Days and January Barometer would certainly boost prospects for full-year 2017.

Read this article in its original format at AlmanacTrader.com

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