Santa Claus is Coming to Town (?)

Will Santa Claus be coming to town?

That’s the question on traders’ minds as markets go through their annual year end gyrations.

Since making a low around 1158, the S&P has been trying desperately to muster a Santa Clause rally. While we have seen some upward movement to 1260 or so, that seems to be a tough level to get through. Fridays close settled just under 1220. We are now up about 5% for December, but that has come on especially soft volume. This is not what long-termers  want to see  in terms of institutional conviction.

Still, this is a dangerous time of year to be short. Year end money gets put to work, as Managers tend to dump their least favorite (read “under-performing”) holdings, and double up on their winners. That’s before we discuss the January effect: The tendency for those small stocks dumped for tax reasons to outperform the broader market in the month of January.

Regardless, this is the time of year where investors should be looking backwards at what’s gone by, what they did right, and where they need to improve. It is also a good time to think about what you are going to be doing next year. It is important to be proactive and plan ahead, as opposed to passively reacting to every market twitch.

Plan on using your holiday time off wisely. Think about what you are doing, and what you would like to accomplish, in 2012.

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