LIVE MARKETS-Lend an ear, bulls hope you'll hear...Santa coming here!

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LEND AN EAR, BULLS HOPE YOU'LL HEAR...SANTA COMING HERE!

The Santa Claus Rally is not just a generic term for any December rally, but an actual technical term that refers to the last five trading days of the year and the first two trading days of the new year.

This year, the rally officially starts on Wednesday, December 24 and ends on the close of trading on Monday, January 5. The term was coined by Yale Hirsch and is now tracked by his son Jeffrey Hirsch and is featured in his annual "Stock Trader’s Almanac."

"His popular adage states that 'if Santa should fail to call, bears may come to Broad and Wall.' Meaning if we don't rally over this period then we could be in for a bear market. While it isn’t always accurate, it sure is interesting to follow and has a solid track record over my career," writes Jay Woods, chief market strategist at Freedom Capital Markets, in his Weekly Market Letter.

Woods adds, "It has occurred roughly 79% of the time going back to 1950. The average S&P 500 return for this period is 1.3%."

There are a number of theories as to why this happens. Woods says these include optimism surrounding the holidays, year-end bonuses as well as fund manager window dressing where the tendency is to buy winning stocks to improve the appearance of portfolios.

In Woods' view, it's clearly not foolproof and should be considered more of a fun indicator. However, he notes that since 1994 the Santa Claus rally period has failed to occur only eight times. After four of those instances the market was lower for the year.

"Granted the sample size is small, but you will hear about it quite often over the next two weeks," writes Woods.

(Terence Gabriel)

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