Will the Santa Rally Appear this 2023 in the Capital Market?

By EWFLuis

The Santa rally is a capital market phenomenon named in 1972 by Yale Hirsc. He noticed an unusual upward movement in the markets from December 28 to January 2 of the following year. This event has been recurrent for years that it has earned its own name “The Santa Rally”. According to the Stock Trader Almanac, since 1896 the Dow Jones gained an average of 1.7% during this period obtaining a positive return 77% of the time.

The Santa rally is not a guaranteed occurrence and it doesn’t happen every year. It is more of a historical pattern or trend that traders and investors have noticed over time. The reasons behind the Santa Rally are not entirely clear, and various factors may contribute to it. Some theories suggest that the holiday season tends to bring about positive sentiment and optimism among investors, leading to increased buying activity.

What About December?

As we could read, the Santa rally arrives in the last week of December. Let’s better analyze what has happened in the last month of the year that has just begun. In the chart below we can see the December returns of the $S&P 500(.SPX)$ since 2000.

December Returns - Santa Rally

If we had invested a certain capital in the $S&P 500(.SPX)$ on December 1, 2000, and we had finished that investment at the close of New York on December 31, and we reinvested the result of that investment again and again every single December until the 31st December 2022, then the investment would have brought a return of 16.61%. Which indicates that investing in the last month of the year could bring us a favorable result. We say could, because 4 of the last 23 Decembers were terrible.

Positive Returns - Santa Rally

In the pie above, we can see the results of the last 23 Decembers. 16 months were positive, that is, 69.57% and the negative results (7) were 30.43%. Although the positive numbers are better, we cannot assume that in December 2023 the results will be good. Furthermore, when December traded downwards it had very bad results.

Chart of The Day 5 December: Dow Futures $E-mini Dow Jones - main 2312(YMmain)$ sequence remains bullish

Dow Futures (YM_F) shows incomplete sequence from 10.3.2022 low favoring further upside. Rally from 10.3.2022 low is unfolding as a 5 waves impulse Elliott Wave structure. Up from 10.3.2022 low, wave (1) ended at 35228 and dips in wave (2) ended at 32409. Wave (3) higher is in progress as an impulse in lesser degree. Up from wave (2), wave 1 ended at 34315 and dips in wave 2 ended at 33913. Index then resumed higher in wave 3 towards 36338.

The 45 minutes chart below shows the move higher in wave 3. Up from wave 2, wave ((i)) ended at 35456 and pullback in wave ((ii)) ended at 35309. Up from wave ((ii)), the Index is nesting in wave (i) at 35641 and dips in wave (ii) ended at 35456. Index then resumed higher in wave (iii) towards 36058 and dips in wave (iv) ended at 36015. Wave (v) higher ended at 36101 which completed wave ((iii)). Pullback in wave ((iv)) ended at 35963. Wave ((v)) higher ended at 36337 which completed wave 3 in higher degree. Pullback in wave 4 is currently in progress as a zigzag structure. Down from wave 3, wave ((a)) ended at 36093 and wave ((b)) rally ended at 36299. Wave ((c)) lower is expected to complete at the 100% extension area at 35857 – 36026 where wave 4 should end. From there, the Index should see further upside or 3 waves rally at least.

Dow Futures $E-mini Dow Jones - main 2312(YMmain)$ 45 Minutes Elliott Wave Chart

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