stock markets

[ANALYSIS] Santa Claus rally or a dead cat bounce?

Den Somera

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[ANALYSIS] Santa Claus rally or a dead cat bounce?
The exact nature of the present uptick is a subject of spirited discussions among my young friends in the stock market

At around this time, the market usually goes through some kind of an uptick. This may happen not necessarily as a direct product of a big overturning event, but as a result of the confluence of some circumstances.

These include the generally bright and cheery disposition of people at this time of the year, the abundance of holiday bonuses, the sudden emergence of some market leads, and, to a greater degree, by the activities of institutional investors to settle their books, which normally happen in the changing of the season like Christmas!    

This kind of development is referred to as the “Santa Claus rally.” Its opposite is called the “dead cat bounce.”  

While the Santa Claus rally is a tendency by the stock market to head upwards during the Christmas season, the dead cat bounce happens as a temporary recovery after a substantial fall that is not necessarily preceded by any change in season.  

Like many anomalies, the Santa Claus rally is random. It has no future guarantees of being sustained, as well. The dead cat bounce, on the other hand, is but a short-lived uptick caused by speculation, nothing more.  

This kind of metamorphosis in the market appeared to have started last Friday, December 1, and became more tangible in this week’s trading.  

Looking back, Wall Street made a late-day rebound on Thursday, November 30. US stocks notched one of their biggest rallies on record due to some favorable fundamentals like the employment uptick of the labor market as they closed for the month of November. This, in turn, apparently served to trigger the market’s uptick.  

Two takes

The exact nature of the present uptick is a subject of spirited discussions among my young friends in the stock market. They have divergent opinions. One side feels that the market’s uptick is more of a Santa Claus rally. The other side feels that the uptick is more of a dead cat bounce.

Jofer Gaite, the president and chief trader of Westlink Global Equities, Inc., is the most optimistic.

He feels the market could climb all the way up to the 6700 level of the Philippine Stock Exchange Index (PSEi). With the market’s close of 6,305.85 on December 6, he is talking of a market gain of about 394.15 points.  

Gaite’s contentions are both technical and fundamental in nature. For one, the market at present is easily led by a small number of stocks with large gains. Second, market bears at the moment, too, are no longer that desperate to sell. This is why with the small value turnover that the market is doing, stock prices are advancing, albeit in small bits.  

Lastly, by the calculations of his sources, the market is estimated to be only trading at the average price earnings multiple or P/E ratio of 12.4x at the 6700-6800 level of the PSEi, which is way below the average 10-year low of 14.8x.

Market strategist and chief trader of H.E. Bennett Securities, Inc., Joel de la Peña, on the other extreme, could not see the present market’s climb to be anything but the result of speculative plays. 

In the first place, the market’s daily value turnover hasn’t increased meaningfully. So far, it continues to trade within the P3.9 to P4.7 billion mark. To him, this is also testimony enough that no additional play money is getting into market.  

Seasoned investors see this type of market occurrence as the result of some market anomaly like when retail investors are left to lead the market. Retail investors are bullish by nature. Their aggressive stance could drive the market to make small upward advances at relatively same value turnover. However, because retail investors are considered weak hands, the advances ultimately losses out.

De la Peña also answered his own question as to why weaker hands are on a speculative mood.  

Their excitement seems to stem from the plan to fund the Maharlika Investment Fund (MIF) on December 15. This could mean nothing at all, but this is creating a stir to retail investors who are active right now in the market. To digress, should this not happen, the next window to fund the MIF is in February next year.

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Emerging markets

Rene delos Reyes and his company, Abacus Securities Corporation, also made a comprehensive review of the dynamics of the current market situation. Based on their study, they feel the uptick is real and that “there is a good chance of a Santa Claus rally this month.”

Among the market leads that may contribute to the Santa Claus rally is that emerging markets like ours tend to do better when the US dollar is weak. The US dollar index is falling and has fallen to its lowest since August, and is likely to decline further as the US Federal Reserve may likely to slice rates than not, for long term bond yields are falling. Oil prices are getting weaker, too. 

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Moreover, despite the market’s strong finish last November, De los Reyes and his company feel that valuation remains “very undemanding.”  To them, market prices are still cheap enough and haven’t been driven up that high. 

As to how high the market can climb up this season, they share a similar estimate as what was earlier identified by Gaite. Nevertheless, they think that this will depend more on the inflation performance of the country. As announced on December 5, inflation for November slowed down more than expected to 4.1%. 

Watch out for further forecasts and what investment positions that may make good for 2024. –

The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise.  Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity.   You may reach the writer at

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