End of Year Round-Up
Not another year nearly gone already and it can't be that time of the year ALREADY to discuss the Santa rally?
Where's my life gone? Have I made enough of it - why should you care?
The Santa rally has been very good to me, indeed the last four years I've made a fortune out of it. It tends to pay for my post-Christmas hols in Dubai, business class tickets, hotels and everything else with some to spare.
What's amazing about the last four years is all you had to do was place a long bet on the FTSE to run for the last ten trading days of the year to make money.
For some reason the rally tends to start from the tenth last trading day of the year which this year, according to my ropey, maths is around Dec 14th.
If you look back at the last four years you'd have got quite easily 300-400 points upside each time. Assuming you'd held firm. So that is in effect buying in mid-December and quitting before the month end.
What happened last time... 2016? It pretty much went up in a straight line bar the odd pullback from 6,750 up to 7,200. I made about £20,000 this time. However, actually I could have held on and made more as it went up more in January!
Usually the first ten trading days in December aren't so good, the market tends to go down. Newspapers often report the "Santa rally hasn't happened" but that's usually false. Consider the Santa rally really being just the last few trading days.
Best way to play it? Some people use options but being a simple soul I just prefer a good old fashioned spreadbet.
If you'd just put on a tenner a point the last four years you could have made more than 16 grand.
And now the warning! After all, there is no such thing as a free Christmas lunch in the markets! And of course this could be the year it doesn't happen!
Markets are close to highs but 400 points is still possible. And things are a bit different, the FTSE reacts to Brexit news - if good things are happening it goes down as the pound goes higher. The FTSE likes a weak pound as the top shares are in foreign currencies.
You may want to consider a stop loss and perhaps decide how much you are willing to lose if it does go wrong.
Consider the FTSE trades 24 hours a day bar weekends so things could hit the index overnight - and also the spread widens overnight too.
If you are going to use a stop be careful where you put it! You may want to consider a trailing stop. Perhaps the main thing is to figure out how much you are prepared to lose... Let's say you buy for a tenner a point. Great if it goes up 400 points and you make 4 grand. But what if it goes down 400 - you could LOSE 4 grand. So perhaps a stop loss should be in 200 points away. You now know you can pretty much only lose 2 grand. One you are 200 points up you could move your stop to break even and now you are running the bet for free.
Why is there a Santa rally? I don't have a clue. Lots of conspiracy theories abound. Some say fund managers push it up to get a better year end return or just low volumes near year end. Well, really who cares why?
Good luck if you play it and hope it brings you lots of lovely loot. But don't overdo it and lose too much either. This could be the wrong year. Have a lovely Christmas season and new year whatever happens, it's only money.