Will Stocks Be Naughty or Nice?

October has come and gone and the bulls are glad to see it go as the S&P 500 gave up 6.9% in the month of October and at one point was down 10.7%. 

Stocks have two months of trading left in 2018 and many investors are wishing for that Santa Claus rally we hear so much about.

The most common definition of a Santa Claus rally that I've found, is the performance over the last week of trading in December, extending to the first two trading days in January. Some definitions include the entire month of December. 

Both of these are fairly short in duration so I decided to look at the performance of the last two months of the year from 1990 to present day...

Let's take a closer look at the data...

Over the last 28 years 75% of the time the last two months of the year ended up with a positive return. That return was 5% or greater 14 times or 50% of the time. On the flip side the negative return being greater than 5% only happened 3 times in 2000, 2007 and 2008. 

The S&P 500 would require an 8% move from October's close in order to get back to this year's high. An 8% increase to end the year over the next two months trading only happened 3 times in 28 years. 

It's also interesting to note that since 2008 the S&P 500 only had one negative return over the last 2 months of the year and that was in 2015. 


Below are five of the stronger trending stocks on my CM50 (Canadian MegaTrends) & UM50 (US MegaTrends) lists. 

The selling continued on Monday with all the major indices getting closer to February's lows before staging an impressive relief rally to close out the week.

As you can see from the month ending data the sectors that suffered the least damage were defensive in nature...

Even know most of the more common momentum stocks have taken a break from making the list the last few weeks, there are still stocks trading at or near all time highs. These stocks continue to maintain strong price trends even while most stocks have suffered. 

Remember that chasing stocks higher is not recommended and even the strongest trending stocks can experience significant drawdowns.