MARKETS SPECTATOR: December gold mine

In the run up to Christmas, the market will be hoping for the traditional Santa Claus rally. Some are even predicting gains of over 10 per cent.

Everyone’s heard of the Santa Claus rally and its knack of returning abnormal gains over a two to three week period leading into Christmas. Looking into this a bit further finds that this Santa Claus rally is merely part of a bigger move.

According to a note released by Goldman Sachs Australia, the fourth quarter has been the strongest quarterly period over the last 20 years, with the market rising 75 per cent of time.

Now, that’s pretty good odds!

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Source – Goldman Sachs Australia

On top of that, the average move in the final quarter of the year is a not-too-shabby 2.8 per cent. But wait, there’s more. Of the 15 up years, the average rise has been a massive 6.13 per cent.

"So we are currently in the strongest period, and so far in 2010 the ASX 200 is up 2.7 per cent,” according to Goldman. "We’re thinking that this could be one of those really special ones where we see a 10 per cent… it’s not that uncommon; in the 15 up years it has occurred 33 per cent of the time.”

Given all the uncertainties (Hurricane Sandy, US election, fiscal cliff and eurozone), many participants believe there is no chance of this occurring. Yet history tells us that the market has a knack of doing things when least expected.

At the start of the year, headlines indicated there was no chance of equity market outperformance, yet markets have ‘climbed the wall of worry’ and are up strongly year-to-date.

A lot of participants are very aware of this, finding themselves seriously behind the eight ball in terms of performance. If markets keep moving higher, then we could see a situation where underperforming money is forced to bite the bullet and buy due to the ‘fear of missing out’. This, in turn will drive the market higher!

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