Santa Rally?

Heather Cullen

Heather Cullen

In The Money

Heather Cullen Blog Santa Rally

Will there be a Santa Rally?

Two years ago (goodness, has this blog been going so long?) we looked at the Santa Rally to see if it was actually a thing. To refresh your memory, the Santa Rally happens on last 5 days of the trading year and the first 2 trading days of the new year. Or does it? We checked the years since 2000 and found that:

      –  16 of the years had an increase, averaging 1.59%

      –  4 of the years had a decrease, averaging 2.25%

While most ot the years were positive, the gains were quite a bit smaller than the losses.

What has happened since then?

If we add in the last 2 years we have:

   –  2021: 0.21%

   –  2022: 1.08%

So both years were positive, but small, less than average. Which got me thinking: what happens in the rest of December?

What usually happens in December?

My inner nerd kicked into gear. I decided to check it out. Using the open on the first trading day of December to the close nearest to Christmas, here’s the results for the last 30 years:

    –  73% of Decembers had gains.

    –  27% of Decembers had losses.

But that doesn’t give the full story, of course:

    –  The gains averaged 1.7%

    –  The losses averaged 3.9%

So, you can see that it isn’t really a high-performing month, with an average gain of 0.2%. Pity. I was a bit disappointed as I always have the feeling that December is a good month, but actually checking the data shows that it isn’t great.

Heather Cullen Blog DEcember Rally

All very well, but what has been happening to SPY during that time?

Heather Cullen Blog SPY gains

Lets look at them together and see if anything stands out:

Heather Cullen Blog QQQ Chart

The only two things that I notice are:

  • December seems to go in the same direction as the rest of the year. If it is an up year December tends to be up.
  • Apart from 2018 when there was a sudden and huge drop in December, SPY gains and losses don’t depend very much on December.

So – what to learn from this? Firstly, check your hunches against real data – and accept the fact that you can be wrong!

To the markets . . .

It was generally a positive if unremarkable week. Nothing has retraced significantly, but instead has consolidated, and we are at interesting levels in all three ETFs that we are tracking. Let’s look at the charts:

SPY Chart

The big news is that SPY has surpassed its post-bear high, and is approaching its all-time high of $477.74 that it reached at the start of January 2022. After a dismal 2022 – 2023, SPY recovered and reached $457.79 on 31st July. Unfortunately, it then retreated until the end of October when it rallied significantly, taking out the resistance level on Friday 1st December.

The resistance level seems to be an important one; it has been a pivot point several times before. Have a look at this graph:

 You can see that it has acted as resistance on no less that 3 occasions, and support on one occasion (the blue arrows). Will it hold above it, and it will turn into a support line? Or will it retreat and turn it into the fourth time that resistance has held?

I don’t know – but I’ll be watching closely!

SPYG Chart

SPYG has pierced the resistance line in intra-day trade but has not manager to close above it. It has been consolidating over the last couple of weeks, perfectly normal behavior.

Looking at SPYG over the same time period as SPY, we can see that it is also at a significant resistance line, although not as close to its all-time high. Check out the blue arrows.

Heather Cullen Blog SPYG Chart

QQQ Chart

QQQ has pierced the resistance line and it is now acting as support, with prices consolidating above it over the last 2 weeks.

Heather Cullen Blog QQQ Chart

If we look at QQQ on the same timescale as SPY and SPYG we see that, like SPY, it is approaching its all-time high from December 2021. I have drawn in the significant support / resistance lines.

Heather Cullen Blog QQQ line chart

VIX Chart

The VIX continues to drop and is well into low volatility territory.

Heather Cullen Blog VIX chart


Heather Cullen Blog ITMeter

The week ahead

At time of writing, 10 hours to market open, the futures are looking slightly negative, but they frequently vary a lot on a Monday morning so I am not reading too much into it.

Heather Cullen Blog Futures

So – as usual – fingers crossed for a good week!


Comments & Questions

As always, happy to answer questions and receive comments (just be kind!)

16 thoughts on “Santa Rally?”

  1. Hi Heather, I’ve just finished going through your ITM backtesting spreadsheet. I had trouble figuring out a couple of numbers in the spreadsheet. Would you be so kind as to explain how you got to the “Cash Left” amount of $102,469 on Jan-3-2007 and the “Premium OUT” amount of $96.43 on Jan-2-2015.

    When I was trying to replicate the calculations, I arrived at $100,469 and $87.43.

    Many thanks.
    Wayne H.

  2. After spending some time with the charts, I wonder how the system would perform using higher leverage with a 50 day EMA instead of the 200 day SMA. The increased leverage might really be beneficial if the IN and OUT signals appeared closer to the bottoms and tops. I know this would involve more trading but frankly that’s just fine with me.

    I’m really looking forward to spending some time digging into the details of ITM. I’ve traded options for quite a while, but not in this fashion.

    Sorry that this email was a bit lengthy. If you don’t have time to answer it, not a problem – I’ll work through it on my own. Thought you might appreciate knowing when someone is really excited about the product you developed.

    1. Hi – I have checked out the 50 / 200 SMA, and it performs really well, but what I don’t like about it is that there are very few trades which means that the drawdowns can be very big before they recover. My calculations show that with a time value of 1% applied in trades over 180 days, and leverage of 100% (strike at 50% of price at time of buying) it works as well as 10/200 – but that has 67 trades (counting buy and sell as 2 trades) whereas the 50/200 has only 29. I am experimenting with ways to use it but limit the drawdowns – so far have not found the hol grail!
      OOPS – just reread – you mean the 10/50 crosses, not 50/200. Sorry.
      My model says that the 10/50 has almost exactly the same outcome as the market, and involves 198 trades, so I wont be pursuiing that when the others are showing 4 – 5 times the market return.
      It is surprising how changing parameters can make such a difference!
      Hope this helps.

  3. I put the SPY data into a spreadsheet and then programmed the moving averages and wrote the logic to mirror your ITM rules. Based on this info, I go a DC signal on 3/1/2000 which was confirmed on 3/2/2000. My understanding is that at the market open the next day you would close the option position. As it turns out, at the close on 3/3/2000 the GC appeared but we wouldn’t necessarily have known this before closing the position earlier in the day.

    Strictly applying the ITM rules, I would have expected to close the position on 3/3 but then open a new position a couple of days later on 3/7/2000.?

    1. Hi – I’ve had a look at the chart for the period you mention – and the 10 & 200 SMAs touch but don’t actually cross. That is why I use the ‘wait one day until you see ‘white space’ between them so that you know they have actually crossed, then buy the next day.
      This is something that is easy to do when you are actually looking at the charts – harder to program, but not impossible. The logic would be that if there was a death cross and the 10SMA was more than , say, 1% under the 200SMA then that would be a confirmed cross and you could enter at the open next day.
      I am wrestling with all this myself – and still have a nagging feeling that taking out all judgement and relying on a purely automated system may not be the way to go. How, for example, would we deal with support / resistance? And so on.
      But hope this answers your question about March 2000. If not please get back to me.

  4. I was wondering, when you do your back testing, do you work off a chart and then fill in the financial data or did you create a spreadsheet / write a program that uses the daily data to generate the results? Wayne.

    1. Hi Wayne
      I use excel to try out various strategies and from there make a short list. Then, when writing the books, I actually stepped through the charts day by day checking that things were correct and clear.
      Naturally, it was terribly time consuming and hard on the eyes! What I am doing now is creating spreadsheets, using daily data going back 30 years, and automating everything. I will refine them as I go, and add in etra conditions to see what is the best combination of indicators and parameters.
      Incidentally – I am finding ChatGPT brilliant for correcting my formulas (i find Excel formulas very clunkly) – so I just cut and parte it into chatGPT, and say ‘please fix’ – and then get it to also write what it does so that I know that I have it right. Not sure if you have discovered that, but I think it is brilliant!

  5. Hi Heather – I loved your ITM Bull and am currently reading the Bear book. I noticed in the Bull book that the Death Cross is defined by both the 10/200 SMA crossing as well as the 50/200 SMA crossover. Which should take precedence? Thanks and Merry Christmas! Bruce

    1. Hi Bruce – thank you, merry xmas to you too!
      Re the crossover – both the golden and death crosses in ITM use the 10/200 cross. Not sure where the 50/200 is referenced? If it is it is an error – if you could let me know where it is I will get it fixed.
      Thank you!

  6. FYI: I recently purchased and finished reading Timing the Market. I also have read your other books as well. I love your writing style. However, I noticed an error on Page 49 (your proofreader missed) on the table that uses the Bank of America figures from their study. There are two “Excluding 10 worst” Column Headings and no “Excluding 10 best” heading. The column data seems to be correct, just mislabeled. My printed edition is 02 November 2023 Orlando, FL. Thanks, William “Bill” H (Chicago, IL.)

    1. HI Bill – yes, it looks like that is a mistake, i’ll have to check back though the MS and excel and see, and get it fixed.
      And naturally, I will severely castigate the proofreader, maybe even sack her . . . oh, wait, it’s me!!
      Thank you!

  7. Hello Ms/Mrs(?) Cullen, I purchased your book ‘Options Trading for Beginners. The information you provide regarding “knowing about options includes about the same quantity and quality of options information presented on the Investopedia website for free. I don’t think I will take the time to further explore any of your titles as I see no reason that my time and money would be well spent in that pursuit. I would rather use my time, money and energy in more productive learning. Which I am sorry to say does not include your published works. I will keep an eye on your blog to see what I can glean from it. My apologies for the negative review. Best wishes, Kirk P.

    1. Dear Kirk
      Thank you for taking the time to contact me. I am sorry you were disappointed in the depth of the book, but it is a 1-hour read aimed at beginners and gives them the ‘nuts and bolts’ of how to trade options. It does not go into options strategies which I think is what you were expecting.
      I am sure that you appreciate that there are hundreds of option strategies, many extremely complicated, far beyond the capability of a single book, far less a 1 hour introductory read. In chapter 11, I go through the next steps and suggest that you use the demo account on your broker’s website to become familiar with buying and selling options, simple calls and puts. I suggest that then, of course, you need a strategy and point to another book where a simple strategy (ITM) is described and is being followed by many people, including myself.
      However, as you point out, there is plenty of information on Investopedia, and if you feel that you are more productive reading about options there, then that is what you should do.
      I wish you all the best for your trading career and hope that you do well.
      PS. Mail chimp would not accept your submission, I found it in SPAM, here is the message (I have blanked out your name). I thought you should know as it is possible other submissions have gone astray.
      MailChimp December 1, 2023 10:56 PM
      HTTP 400 – looks fake or invalid, please enter a real email address.

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