Will the stock market rally for Santa Claus?

Stock market Santa Claus rally ASX small cap shares

It is that time of year when the Christmas decorations are all over the shops and share market investors begin to wonder about the prospects for a Santa Claus rally.

The rally really does exist although like most share market truisms it sometimes rewards investors with a sack full of goodies but can also leave them very unhappy with a big lump of coal.

There are a number of theories about why stocks tend to rally into Christmas and up until the New Year.

Reasons for the rally

Some claim it is a psychological phenomenon with people feeling good towards the end of the year.

Others point to more obscure reasons such as short sellers going on holidays or an anticipation of the January effect, which often sees global stocks rally to start the year after US tax loss selling is out of the way.

There is also a theory that there is a rush of cash from Wall Street bankers investing their bonuses before the holiday break, although that suggests they may have started to believe their own publicity.

Santa losing his market mojo

Whatever the reason the Santa Claus rally is a real thing, even though in recent years it seems to be losing some of its potency.

Using the US market as a useful “leading market’’ proxy, there has been a Santa Claus rally in 34 of the past 45 Christmas seasons, which is defined as 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 per cent and returns are positive in each of the seven days of the rally, on average.

Research going all the way back to 1896 has also shown an average 1.7 per cent gain during this seven day trading period, with positive results 77 per cent of the time.

No rally, bear market?

There is another reason to look out for the Santa Claus rally because in years where it doesn’t turn up the rest of the year and sometimes much longer can be terrible.

The best recent examples are the four per cent decline during the Santa Claus rally period of 1999, which ushered in a 33 per cent retreat in the ensuing bear market and the decline at the end of 2007 which also ushered in a nasty bear market.

One thing that might be operating in favour of a positive Santa Claus rally has been the healthy correction that has been passing through the Australian and other Asian, European and US markets this week.

After a strong run – in Australia’s case to some market closes last week above the 6000 point mark on the ASX 200 – there has been an easing in the market with a close of 5957.3 points on the ASX 200 on Friday.

There has been no real trigger for the market weakness but most analysts see the correction as a healthy period of consolidation which has been widespread across most major markets, particularly as the US dollar strengthened against many currencies.

Small cap stocks this week

That hasn’t stopped the usual intense activity in the small cap space with some dramatic share price movements.

Golden Mile Resources (ASX: G88)

Prime among the fast movers was Golden Mile Resources which has skyrocketed from just 12.5c a share at the end of October to a high of $1.21 this week.

Golden Mile has uncovered further nickel mineralisation at its Quicksilver project, including wide intersections at shallow depths.

Assays from holes near the earlier nickel and cobalt discovery showed wide mineralisation containing both nickel and cobalt and the entire project is also prospective for scandium.

While Golden Mile’s share price performance has been spectacular, many nickel stocks have also been firming on the growing recognition that nickel use will be boosted by lithium ion batteries in electric cars, consumer electronic and sustainable energy markets.

Empire Resources (ASX: ERL)

Gold miner Empire Resources moved a step closer to dramatically extending the mine life of its Penny’s Find open pit gold mine by appointing Stephen Rodgers to manage a feasibility study into an underground operation.

Penny’s Find could be extended by a decade or longer if it progresses to an underground stage after hitting many early targets including its first gold pour and early cash flow from processing ore.

A diamond drilling campaign showed some excellent ore body extensions including grades of up to 15.60 grams per tonne.

Empire Resources anticipates the final feasibility study and updated underground resource will be completed within the next few months.

American Patriot Oil and Gas (ASX: AOW)

American Patriot Oil and Gas has been hitting some milestones with early revenue from its recently acquired oil assets in South Texas and Louisiana in the United States.

With production ramping up across its asset portfolio, American Patriot is aiming to produce 500 barrels of oil equivalent per day by the end of the year.

The company has shown excellent timing by buying oil and gas assets at good prices just as the oil price is showing signs of sustained improvement.

The US assets have low production costs of around US$20 a barrel, which means they can continue profitable production even when oil prices are low.

American Patriot is aggressively pursuing a goal of producing more than 1000 barrels of oil a day by 2018 through further acquisitions.

Queensland Bauxite (ASX: QBL)

Queensland Bauxite is now looking to sell hemp food through its 55 per cent owned subsidiary Medical Cannabis Ltd.

The hemp food products will be launched later this month and sold under Medical Cannabis’ Vitahemp brand.

The new legislation permitting the sale of low THC hemp seed foods was proposed in April this year and came into effect on November 12.

Hemp seeds are claimed to be very high in helpful omega fatty acids, vitamins and minerals and are gluten free with a taste and texture similar to many nuts but without the same allergies.

Hemp seeds can be incorporated in muesli bars, salad dressings, pasta, breads, smoothies, biscuits, non-whey high fibre protein, flour and can be used as a dairy substitute.

The initial Vitahemp product range will be unveiled to the market with the brand launch at the end of the month and Queensland Bauxite anticipates “significant” cashflow from the products.

eSense-Lab (ASX: ESE)

Israel based eSense-Lab is moving into the US$4.5 billion retail cannabis market in the United States, after finalising its beta cannabis terpene infused chocolate product in collaboration with Healthy Chocolate Florida.

Cannabis terpenes are fragrant oils secreted in the flower’s resin glands, which also produce tetrahydrocannabinol (THC), cannabidiol (CBD) and other cannabinoids.

eSense-Lab has created natural reformulated cannabis terpene profiles, with ten available formulations and a further 20 under development.

The collaboration with Healthy Chocolate Florida has developed an “optimum terpenes/chocolate ratio” to produce a beta prototype for the chocolate product for nutraceutical food and beverage markets.

The Hydroponics Company (ASX: THC)

Shares in the Hydroponics Company rose after it announced that its subsidiary Canndeo Ltd has secured an agreement with Europe-based Endoca to distribute cannabis throughout Australia.

Endoca produces GMP certified medicinal cannabis and will initially distribute a high purity cannabidiol (CBD) oil, capsules and a combined CBD and CBDA oil throughout Australia.

Endoca’s medicinal cannabis sales are above EUR50 million a year and Hydroponics is aiming to supply Australia with the world’s best cannabis products and knowledge.

He said Australian doctors and patients will soon be able to access these products.

Fastbrick Robotics (ASX: FBR)

Australian technology company Fastbrick Robotics is building a second prototype of its revolutionary robot bricklayer, Hadrian X.

When completed, Hadrian X will be able to lay up to 1,000 bricks an hour and build the brick component of a house within three days, according to Fastbrick.

Fastbrick already has a Memorandum of Understanding (MOU) with the Kingdom of Saudi Arabia, with plans to have 100 Hadrian X robots constructing a minimum of 50,000 new homes there.

Having two prototypes will allow the company to have a more aggressive approach to acquiring new customers.

Fastbrick has also signed an MOU with Caterpillar Inc. and together they are building a strategic plan to commercialise Hadrian X.

TV2U International (ASX: TV2)

Another big mover this week was TV2U International, with shares more than doubling after it announced that its global entertainment platform SOL GO service has been launched in Brazil.

In what TV2U labels a “world first” its franchise business model brings affordable television and entertainment to consumers across a variety of devices including televisions, mobile phones, tablets, personal computers and set top boxes.

TV2U has developed an entertainment platform which enables media and communications organisations to offer streamlining content to their customers.

TV2U’s system encrypts channels and offers businesses real-time viewer analytics to enable them to create highly targeted advertising to maximise their revenue.

Week ahead

With a shorter trading week in the US thanks to the Thanksgiving holiday, a lot of the local attention will switch to our Reserve Bank board minutes which are released on Tuesday.

While poring over the minutes may seem as informative as observing chicken entrails, all investors need to keep an eye on the future direction of local interest rates as an indicator of economic activity and market stimulus.

Most pundits are expecting little change in the wording of this month’s decision but that won’t stop a mountain of analysis of the announcement.

John is a highly experienced business journalist and formerly chief business writer for the Herald Sun. He has covered Federal politics in Canberra, was Los Angeles Bureau chief for News Limited and was also chief of staff for the Herald Sun. He has covered a wide range of small and large cap ASX stocks and has a special interest in mining and technology.