Swing Trade, Round 6: Buy – Santa Claus Rally

I was listening to the local radio station yesterday and during the business news section, heard about something called the Santa Claus Rally. It’s basically a term to describe a rally in the stock market during the holiday season, or more specifically the last 5 trading days of the year and the first 2 of the new year (7 days total.) Based on years of research by an analyst at J.P. Morgan the Dow advances 80 percent of the time during this rally period. And the S&P 500 averaged 1.5% gain from the rally since 1950 according to other studies. Seems like the odds are favorable :0)

If historically stocks have performed well during this time then why not try to take advantage of this once in a year opportunity 😀 So I did some research last night, and just this morning, literally like 20 minutes ago when the markets opened I bought 2 companies, Amazon.com Inc and Bank of America for a new round of swing trading…

Both these companies have great short and medium term technicals which is important for swing trading and I feel like they both can out perform the market which is also what we want because we’re expecting the stock indices to gain over the next 7 trading periods :0) I’ve looked at Amazon before from an investment point of view and cannot wrap my head around it’s ridiculous P/E ratio. I know its business is growing at like 40% a year, but fundamentally it’s still on the overvalued side which is why I’ve never bought it for my buy and hold portfolio. But hopefully it will make for a good swing trade stock. As for Bank of America, they are one of the largest banks in the US. If housing sales continue to improve, and GDP numbers stabilizes then this bank’s shares should do really well :0) Below are the details and the prices that I actually bought them at.

Amazon.com Inc. (AMZN.Q)  Bought: $257.23 x 6 shares = $1,543.38
Bank of America Corp. (BAC.N)  Bought: $11.19 x 128 shares = $1,432.32
Total Initial Investment = $2,975.70

As usual I’ve censored my account numbers with black bars for obvious reasons. I don’t plan to make much from this swing trade, maybe around $100 to $200. My exit strategy is to sell both these stocks when I’ve made $100 to $200 and the stocks are going down, or sell both stocks and take my losses if I start losing over 50% of my investment. Whichever comes first. Will this be a good move or will I lose big? We’ll just have to wait and see 😀

The reasoning behind the Santa Claus Rally is that people on Wall St and those who work for large financial companies get paid bonuses at the end of the year. So professional stock traders and other people with deep pockets are helping to boost the stock markets during this time. Also January has been known to be a good month historically for stocks, so many investors want to try and get into the markets before the January effect takes place.