Is ‘Santa Rally’ Already Under Way?


Simpler Trading Team

3 min read

There is growing speculation whether the annual “Santa Rally” has already begun as the market continues to rise.

The market is looking a lot like the holidays – a rush to buy what’s hot and forget what’s not – yet it remains to be seen if October will usher in this seasonal rally early this year.

Like all seasons in the market, traders apply historical data and technical signals to determine when the next trading rally gets rolling. When the shift happens, the market gains movement from retail investors who take advantage of the spending season – and a rally is under way.

During the “Santa Rally, the economy responds to growth in corporate profits, i.e. increased retail spending from holiday shoppers. The economic cycle impacts market sectors, as some perform better than others during cycles of growth and recession – and this is why traders strategize with sector rotation.

Stock market sectors include: energy, materials, industrials, consumer discretionary, consumer staples, health care, financials, information technology, communication, utilities and real estate.

Everything has a season and Simpler’s traders follow these time periods to search for trading opportunities. During seasonal events, sectors have varying favorable market conditions.

For example, as an economy recovers from a recession, investors tend to favor the financial sector, as interest rates are more favorable to banks. As the economy gains strength, investors tend to rotate to technology – businesses invest in technology for growth.

Some sectors are relational, like transportation being affected by crude oil prices. As sectors go in and out of favor, traders may look to shift focus and buy or sell securities within those sectors.

During a strong economy consumer discretionary spending generally increases, drawing investment dollars to that sector. Sectors often play off one another, as investors adjust according to shifts in the market

Some sectors are not as sensitive to the economic cycles, such as consumer staples, utilities, and health care.

Trading portfolios that are being held for long periods of time can be structured with sector diversification to avoid oversaturation of any one sector. Investors who were solely invested in real estate could have lost their shirt during the housing and financial crisis of 2008. Traders must be cautious and use sector knowledge and strategic options to their advantage in a spiraling market.

Simpler’s traders follow the market sectors when strategizing their trades because these affect the indices. Having an understanding of sectors and their related industries, and specific companies, offers opportunities for traders to significantly improve trading strategies.

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