GRINCH THAT STOLE THE SANTA KLAUS RALLY

As the so-called Trump Rally went on for the stock markets, I began to wonder if the Trump Rally was simply borrowing the Santa Klaus Rally?  Well that seems to be the case.  The Santa Klaus Rally wasn't negative but it was barely positive (see figure).

Traditionally the Santa Klaus Rally is the last three trading days of the old year and the first two trading days of the new year.  On this basis, the S and P 500 started the Rally period at 2268.88 on December 27, 2016, and ended it at 2270.75 on January 4, 2017 or an increase of  +0.082%.  The figures for other indices are: +0.19% for both the DJIA and the NASDAQ Composite, +0.58% for the NASDAQ 100, and +0.74% for the Russell 2000.

(Click on figuire to enlarge)

Another piece of Wall Street lore is that the first five trading days of the new year show you how the year will go on stocks: if positive, the year will be positive and, if negative, the year will be negative.  So how did it do.  I'm pleased to say it did pretty good.  The S and P 500 gained 1.34%.  The DJIA gained 0.63%.  The NASDAQ Composite gained 2.76%,  The NASDAQ 100 gained 3.31%; however the Russell 2000 gained only 0.02%.

Though this indicator is positive for 2017, we need to remember that 2016 started as the worst ever period for stocks although the year ended up quite good.  Also consider that most years are positive for the stock market so you would on average do well if you just stayed in the market year after year, called "long-term buy and hold."

* http://www.cnbc.com/2017/01/18/narrowest-dow-range.html
http://www.cnbc.com/2017/01/18/business-euphoria-over-trump-gives-way-to-caution-confusion.html

BULLS AND BEARS ON THE STOCK MARKETS

Saul Williams of Motley Fool has a very nice article on Bull and Bear markets.*  A few excerpts are below.  He also present two figures from Yardeni Research that show the details of the figure reproduced below that show the details. I recommend you read the full article.  How long the current downturn occurs and how deep it ends up going remains to be seen, of course.  The beginning of it is unique.

...between 1965 and the end of 2015 the S&P 500 underwent 27 corrections of 10% or more (numbers were rounded to the nearest integer). 
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...we spend more time in rising markets than we do during periods of correction. This is more of an extension of the prior point that corrections, while not uncommon, tend to happen quickly and be over with. Only with rare exception (the 2000-2002 correction, which lasted 915 days, and the 2007-2009 correction, which went on for 510 days) do corrections last a prolonged period of time.

But here's the most important thing to note: The S&P 500 reclaimed the lost value in every single instance involving a correction of 10% or more. That's 27 corrections of at least 10% (again, rounded up) since 1987, and every single one of those corrections wiped out by a bullish rally at some point. Sometimes it takes just weeks to wipe out the effects of a correction, or as you can see with the dot-com bubble of 2000, it took a good seven years for long-term investors to be vindicated once more.

(Click on figure to enlarge)

* http://www.fool.com/retirement/general/2016/01/18/the-only-chart-that-matters-during-a-stock-market.aspx