NASDAQ Stocks For The Santa Claus Rally

The overall market is expected to move higher from December 15^th through January 7-11. Seasonally this has been one of the most bullish periods in any year. This period has been up about 70% of the time since 1885. This year is likely to be exceptional due to the occurrence of Dewey’s Cycle. Mr. Edward Dewey, the founder of the Foundation for the Study of Cycles (cycles.org), noted an oddity in stock prices that could only occur between December 20^th and January 20^th. He was seeking a way to add value to the usual seasonal strength, especially the Santa Claus Rally. He discovered that once every two to three years, there was exceptional strength in the time period. Applying his barometer, the likelihood of a higher market from December 15^th to January 7^th is as high as 84%. He wrote about this in a 1969 edition of Cycles, the journal of the Foundation.

Here are stocks that tend to outperform in this three-week period. The list is sorted by the percentage of times in which the equity rose in that period which is in the third column. The second column is the percentage of price return. Column one is the expected return, the product of columns two and three. We see that Applied Materials is ranked first. It has risen over 78% of the time over the last 42 years.

Stocks That Are Likely To Outperform In The December 15-January 7 Period:

Relative strength is important in making selections. Applied Materials, like many technology stocks is weak in this area. Let us look beyond technology. Vertex has risen 70% of the time with a superior percentage gain of 8%. The daily histogram for this month shows that the strength develops after the 15^th.

Vertex Pharmaceutical shares are likely to outperform. December has been the single strongest month to hold these shares. Most of the appreciation has occurred in the second half of the month. Technically, relative strength has been rising since October. The shares may rise over $325

Vertex Weekly Chart

Vertex Daily December Histogram

Blue: Average Percentage Change

Red: Probability of a rise on that day

Green: Expected Return (Product of the first 2)

Automatic Data Processing was recommended in a prior post for a simple reason. From August 1 to December 31, this stock as well as Archer Daniel Midland has risen 80% of the time over the last 42 years. The December outperformance is graphed in the histogram below. Relative strength bottomed in September 2020 and hit a new high yesterday. The stock is due to rise closer to $275 by the end of the month.

ADP December Daily Histogram

Blue: Average Percentage Change

Red: Probability of a rise on that day

Green: Expected Return (Product of the first 2)

ADP Weekly Chart