The old saying goes “History never repeats itself, but it rhymes…” This Blog is very much in line and explores a possible ‘Roadmap’ for how the remainder of 2014 might play out. Some of you reading this will be aware of certain ‘Seasonal Investing’ patterns - the classic being “Sell in may and don’t come back until St Ledger Day” - which encapsulates the fact that the UK stockmarket, more often than not, outperforms over the Winter months compared to the Summer period. The seasonal phenomenon that I am relying on for this Blog is really the Santa Rally - it is the pattern that stock prices in general tend to rise in the later weeks / days of December and perhaps into early January - this occurs with amazing reliability and in recent years has delivered wonderful gains. So, let’s make a huge assumption - i.e. we will get a Santa Rally this year….. Therefore, if we are to get such a pleasant Xmas Gift - what is likely to happen before it? I suggest the most like Roadmap would be as follows:
If markets continue to go higher through November and early December, it seems unlikely we can get a Santa Rally and markets would be very overbought if this was the case - and a Drop around Xmas might be more likely in this Scenario. To give this some more ‘colour’ - let’s consider what happened last year by looking at this chart: Below is the chart for where we are now. As you can see, we are perhaps following a similar pattern and I have to admit I am very surprised how similar they are - I actually thought we were lagging compared to last year - I guess on the 2013 chart we had peaked around today‘s date (3rd Nov) whereas maybe the Relief Rally after recent falls could go a little higher before a down move. Will we get a repeat of the usual pattern and a Santa Rally? - impossible to tell, but it seems a plausible scenario to follow my Roadmap….In line with this, I am keeping my FTSE100 Short on and my hope (that’s all it is really, not much real ‘proof’ to go on) is that I will be able to close out the short for maybe a small loss if the overall Market does fall off in the next few weeks.
As per a recent Tweet and my comments in a Blog today on AZN, I will also try to sell some stuff to reduce my Long Exposure and add to Cash…..but it makes sense to still have significant Long Exposure for any Santa Rally as they can be very powerful. Adios…….
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