The stock market and crypto markets have had a lot of crossover this year. Whenever I look to see how the Nasdaq is doing I can usually guess how the crypto markets are doing as well. We know that winter has not always been kind to crytptocurrency markets(as we saw in the 2018 crypto winter). But did you know that, generally, Christmas is one of the most consistently bullish periods in the market?
Will Santa bless us with gains or leave us all with coal? Have we been naughty or nice? Let’s take a look…
The Santa Claus rally is a a stock market rally that frequently occurs during the holiday stretch, more specifically the last five trading days of December and the first two of New Year.
Positive returns are achieved around 75% of the time and the S&P 500 has averaged a gain of 1.3% since 1950.
Less and less traders are starting to believe in the Santa Claus rally, however, with a couple of years of Santa dropping some nasty coal onto speculators. Other claim that because the market is efficient(all known information is already priced in) people may be trying to front-run the suspected rally, thus changing the results.
Sometimes the stock market is a lot like quantum physics, once we can observe a pattern it tends to change. After all, it's essentially a zero-sum game in which not everyone can win.
Because the line between traditional markets like stocks and cryptocurrency markets has blurred in recent years, many believe that the Santa Claus rally is alive and well in crypto markets.
During Christmas time, most of the traders are retail, with many hedge funds and VC firms on vacation. There is speculation that because the market has less short-sellers(which tend to be hedge funds), the market has a bullish sentiment.
As we all probably know, most crypto traders are retail. Not only that, the cryptocurrency market is actually open during Christmas. As of writing this, Bitcoin has recently broken above 51,000. Belief in a crypto Santa Claus rally is gaining traction.
You might remember the old stock market adage 'Sell in May and go away'. The period of November to May typically represents the best six months in the stock market. December and January have traditionally been strong months for the market.
One explanation could be the January effect. In December, many large institutions sell in December for end-of-year tax purposes as well as to balance their annualized returns.
This means that the Santa Claus rally could just be anticipation for the January effect.
"Historically today is the day the Santa Claus rally starts. It worked even during 2007-2009. So it is hard to doubt.." tweeted Jim Cramer.
A user responded back "Historically you didn’t have a new covid variant spreading like there’s no tomorrow, vaccine-hesitancy at record levels, the Fed tapering faster with potentially 3 interest rate hikes leading to a recession!"
Some tweets were more skeptical, with one showing a chart trying to debunk the rally.
A user responded: "This is actually worse then finding out Santa is not real for the first time"
So put your milk and cookies out, write Santa a nice note and let's hope he blesses us all with prosperity this Christmas and into 2022!