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.
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