FTSE may sink to 7,300 before ‘Santa’s rally’

Is the FTSE set to hit lows?

Ahead of the much-anticipated end-of-year Santa’s rally, the FTSE may be set to hit lows.

The often observed ‘Santa Claus rally’ is often marked by a strong stock market performance across the Christmas and New Year period.

However, the FTSE may be set to reach lows of 7,300 before any Christmas rallies.

Bob Roberts, Head of Trading at Clear Capital Markets, commented: “in the short term, the FTSE is expected to drop to 7,300, given the double top in October”

He added: “However, in the run-up to the fabled center rally, the FTSE should rally back up to highs of 7,450 to 7,500.”

With regards to any sectors to watch, Mr Roberts expects oil and mining stocks to continue to remain strong and push higher into the year.

Is the so-called Santa’s Rally likely?

Last November, PNC Financial Services’ chief investment strategist William Stone mentioned the trend in a note circulated to investors:

“According to the 2016 Stock Trader’s Almanac, since 1969 the Santa Claus rally has yielded positive returns in 34 of the past 45 holiday seasons — the last five trading days of the year and the first two trading days after New Year’s. The average cumulative return over these days is 1.4 percent, and returns are positive in each of the seven days of the rally, on average. Nevertheless, each year there is at least one day of declines.

Alternative research over a longer period confirms the persistence of these end-of-year trends:

“According to historical data going back to 1896, the Dow Jones Industrial Average has gained an average of 1.7 percent during this seven day trading period, rising 77 percent of the time.”

Whilst the Christmas period rally has been recognized a common tendency of the market, there have nonetheless been years when the so-called Santa’s rally has failed to make an appearance. This was the case back in 1990, 1999, 2004, 2007, and 2014.