As we head into the home stretch for 2016, we come across quite a bit of seasonal notions that many try and discern a pattern to follow. But is the calendar really something reliable or just a myth? As we always say, follow the price action – the market will never lie to you.
We just finished one of the oldest calendar anecdotes, ‘sell Rosh Hashanah and buy Yom Kippur’. Certainly the sell part was correct, markets have been down since the Jewish New Year began. As one would expect, this notion is not too reliable or consistent – and probably holds true about half the time. More important are the indicators that we follow – overbought or oversold.
Another is ‘the bears will have Thanksgiving while the bulls will have Christmas’. The idea here is markets will sell off in mid/late November only to set up for a rally into year end. Strikingly, the last few years have seen the opposite take place.
Finally, the ‘Santa Claus Rally’, where the markets are set to always rise from Christmas Eve until the second trading day of the new year. The last couple years have been a dud for this one, in fact they have led to sharp declines into the start of the year. The setup is often positive but if sentiment is not in alignment we tend to see the opposite occur (too much bullishness, the markets decline).
Just be very careful when you hear these calendar mantras talked about later in the year. While they make good conversation for the media and around the water cooler, they fall short of being the predictors they pretend to be.
