First-Half December $DJIA $SPY $QQQ $IWM Weakness Sets Up Strong Finish

Stocks

In the following chart, the one-year seasonal pattern for DJIA, S&P 500, NASDAQ and Russell 2000 have been plotted using data from 1992-2012, the most recent 21 year period. As highlighted by a light brown box, it is not uncommon for these indices to suffer a bout of weakness in the first half of December. Although not shown in the chart, the pattern consistently appears even when data going back to 1950 (DJIA and S&P 500), 1971 (NASDAQ) or 1979 (Russell 2000) is used.

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[DJIA, S&P 500, NASDAQ and Russell 2000 One-Year Seasonal Pattern Chart 1992-2012]

On average, weakness typically begins on around the fifth trading day of December and lasts until the tenth or eleventh trading day. Declines have averaged from 0.5% (DJIA) to 1.6% (NASDAQ). Considering above average year-to-date gains, this year’s first-half December pullback could also be of greater magnitude and since weakness began earlier this year it could also end earlier. A few percentage point pullback in first-half December would make an excellent entry point for trading typical market strength during the last two weeks of the year.

 

By Christopher Mistal

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