Has the Santa Claus Rally Already Started?

Tom Gentile

Posted in
Big Picture

By: Tom Gentile
November 17th, 2023

5 mins read

You may have already heard talk of or reference to the Satna Claus Rally.

Depending on who you ask some will say it doesn’t happen until the week before Christmas and some will say it happens the week after Christmas and in to the first of the year.  What I read shows this latter time frame the most popular assessment.

My friend and trading colleague Chris Johnson start off my Profit Strategies Podcast with talks of stocks in the Retail sector as this sector is what comes to mind when one talks of holiday shopping and the Santa Claus rally.

We both contend the holiday shopping is well under way and you all reading this can probably back us up in that if you too, are doing some or have already done some holiday shopping.

What is this Santa Claus Rally?

It is a period of time (days to a bit over a week) when there is an increase in the stock market. It happens across many sectors, but the one that stands out or is the most talked about is the retail sector.

Back to when does it happens in the week leading up to the Christmas holiday, while others see the occurrence of increased buying of equities beginning Christmas Day and going through up to Jan. 2.

Reasons believe the markets tend to trade higher over this period of time, because of seasonal happiness on Wall Street; folks have the Christmas spirit in them.  Many people get their holiday bonuses and in the feel-good spirit take to spending that bonus money on the holidays and gift giving.

Another reason could be some institutional investors settle their books, resolve their end-of-year taxes, and take time off during this time of year.  With the institutional investors largely not taking part in the markets it leaves the retail investors participating in the markets  and they tend to be more bullish.

Why am I writing about the Santa Claus Rally in the middle of November?

Some will say it has already begun.

You will hear in the podcast right away that Chris and I have already been taking care of some holiday gift purchasing.

I have a chart on the XLY coming your way in a second that shows what that sector ETF has done since late October.  You will see a very pronounced upswing in this ETF from October 26 to present.

To be fair, I believe much of the run being attributed to the Fed NOT raising interest rates in their last meeting, November 1.  Aside from not raising rates, the assessment was the Fed is done raising rates the rest of the year.  The markets have been rallying since and there was even talk on a financial news network is this a Santa Claus rally that is happening.  

A bit early in my view I thought, but now here we are November 17, and the markets are continuing their bullish move.

Figure 1: 20-Day Candle Chart on XLY
Figure 1: 20-Day Candle Chart on XLY
Figure 2: 120-day Candle Chart on XLY
Figure 2: 120-day Candle Chart on XLY

Consumer Discretionary Holdings ETF: XLY

The rally in the markets are happening over many sectors, not just retail, but when it comes to the holidays this is a sector largely focused on by investors and options traders alike.

One can go to www.sectorspdr.com and look up all the Sector S&P ETF’s and drill down further in to the holdings of the ETF’s to see the stocks that comprise the ETF.

Stocks that are classified retail stocks are found in the XLY, not all of them, but quite a few, which is why this ETF is sometimes considered a retail ETF.

If someone wants to find out which stocks have the largest weighting in the ETF or what the actual stock tickers make up the ETF to consider individually trading or investing in them this site will show that.

Note the ETF itself is optionable and one can consider option trades on it.

Lastly, one can run a performance view over various time frames to see which ETF’s have performed the best and the XLY over the past month, *at the time of this writing, is up 2.78%. and over the past 5-days it is up 4.58%, which is the 4th best performing SectorSPDR ETF over that time frame.

The last four months of a calendar are typically the mist bullish, and November is deemed the best of the last 4 so I believe we have more upside until the end of the year.

Profit Strategies Podcast

Chris and I discuss the markets and what the most recent inflation reports, CPI and PPI looked like and how the numbers from those reports give indication inflation is cooling and what that means for equities the remainder of 2023.

I show my Money Holidays tool and for some of you this may be new and if you like that consider a subscription to my options analysis tools at www.tomsoptiontools.com.

My most recent podcast can be found on my YouTube channel: https://www.youtube.com/@TomGentileTrader. Please subscribe for free to get notified when I post up my latest educational market education and outlook.

The video, which is the latest Profit Strategies Podcast with Chris Johnson, and can be viewed here:

Power Profit Podcast for November 17, 2023

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