Is Santa bringing a shares boost?

EACH year the financial industry tells you to watch out for the ‘Santa rally’. So, will a Santa rally push your shares higher this year?

Firstly, while you may perceive that a Santa rally would occur in the lead up to Christmas, you may not be aware of the original theory behind it. Research conducted between 1950 and 1972 on the US market by Yale Hirsch found that the S&P500 averaged a 1.5 per cent gain for seven days, typically from the last week of December through to the first two days of the New Year.

But a few days up on any market or a 1.5 per cent rise doesn’t fit my definition of a market rally. I’m sure Santa’s not ho, ho ho-ing about a short term rise either.

Short term rises are nothing to get excited about as they can easily be wiped out if the market falls the following week.

So who does all this talk of a Santa rally benefit?

Trading volumes fall between Christmas and the New Year, so perhaps a Santa rally is less about spreading the festive cheer and more about the industry encouraging you to transact.

Remember that a true rally on the market is a rise that can be sustained over many weeks or months.

In the past 10 years, the market has experienced these true rallies in the lead up to or through the festive season in only three out of 10 years. Also, the data indicates that you’re more likely to see a solid rise towards the end of the year if the market has been rising in the second half.

While I see reasonable probability for the market to make a further rise for a week or so through December into January, the market will often pull back in the New Year before rising again later in the first quarter.

This week the All Ordinaries Index ( XAO) remained steady as it continued to trade sideways below the November 2017 high at 6124.7 points.

From here, provided the market breaks the recent high of 6124 points, which is still probable, it is likely to continue up into the target zone between 6200 points and 6400 points into the New Year. Alternatively, a fall below 6023.5 points would indicate that the market will soften slightly before attempting the next rise.

On behalf of the Team at Wealth Within stay safe and be merry this Christmas.