So here’s the uncomfortable truth: some of this nonsense appears to actually work. Not because Jupiter has anything to do with equities or any other market, but because human behaviour and history do. And ironically, charting human behaviour is also the basis of all technical analysis. Markets run on pattern-seeking and historically December is when those patterns hit overdrive.
Traders see signs in charts where no real fundamental support exists. And then, like a self-fulfilling prophecy, markets tend to start behaving as though these signs matter.
Behavioural-finance researchers like Terrance Odean, a professor of finance at UC Berkeley and Brad Barber, his longtime co-author, have produced some of the most seminal works on investor psychology. They have shown repeatedly that retail investors become more optimistic and more active in December and January, even when fundamentals look no different from November or any other month. Their studies link this to mood, new-year reset psychology and a widespread belief – alcohol infused or otherwise – that “things get better after Christmas”. If that’s not financial astrology or some other esoteric nonsense dressed in business attire, Dollar Bill doesn’t know what is.
The funny thing is, for all the scoffing at astrology and seasonal behaviour, markets have always been a magnet for people who swear they can decode the future from historical patterns with almost zero reference to underlying fundamentals. Entire careers have been built on drawing lines on charts with the kind of conviction usually reserved for religious scholars. Technical analysts insist the potential for every earnings downgrade, drilling miss, tariff shock or anything else that could impact a spreadsheet are already “priced in” by efficient markets providing a rationale for the belief that only the squiggles on charts can guide us. It’s a kind of financial hieroglyphics for the initiated.
The fundamental analysts that tend to congregate in the cigar bar at the Club, of course, dismiss all of this as not much more than witchcraft. These hardcore analysts prefer balance sheets, capex schedules and long-form reports written in fonts so small they require naval-grade optics. But even the most hardened fundamentalists tend to get a little twitchy in December. Again, it comes down to history, numbers and returns.
These are the same blokes by the way who spend eleven months of the year preaching discounted cashflows, but all of a sudden start muttering about seasonality, window-dressing and low-volume rallies as though reading tea leaves instead of term sheets now matters. And while these technocrats usually get mocked for their lack of focus on psychology and crowd behaviour, Dollar Bill knows they secretly all believe in it – particularly in December.
Traders look for patterns because patterns make chaos explainable. Algorithms hunt for them because someone told them to. And it’s precisely around Christmas time, when almost everyone – the quant, the boomer, the TikTok disciple – all start behaving like a pattern-seeking market missiles.
And curiously, these end-of-year rallies are most prominent when sentiment is at its gloomiest. Research from the American Association of Individual Investors points out that markets grind higher most often when bearish sentiment dominates. A Bank of America global fund-manager survey has produced similar results, showing cash allocations are generally well above long-term averages precisely when indices hit cyclical highs. And now this is repeating again, with global money-market funds swelling beyond US$6 trillion in cash – a record wall of funds demanding allocation in a rally nobody trusts but which keeps reaching higher.
Behavioural economists call this a “disbelief rally”. It’s the markets climbing what the old hands call a wall of worry. Traders mutter darkly about a pending pullback, a correction, inflation prints, bond yields and central-bank missteps – even recessions – but all the while ploughing more money in.
All of which leaves us with a slightly embarrassing truth: the more we study markets, the more they resemble a vast behavioural experiment disguised as rational finance.
And if all of this sounds like the exclusive domain of amateurs and eccentrics, again the history and the data both suggest otherwise. Some of Wall Street’s most decorated traders and analysts have openly flirted with ideas not far removed from what that chap at the club blurted out. W.D. Gann – a doyen of technical analysis and author of Gann Theory whose work is still gospel to modern technicians – actually built an empire using planetary cycles (I kid you not) and seasonal effects as reliable indicators for market trends.
Which raises the uncomfortable possibility that the line between a seasoned technician and your local clairvoyant is thinner than anyone wants to believe.
In the end, this may be the real lesson of the silly season. Markets are not driven by Jupiter, Mercury, tarot cards or moonlight. But they are driven by people who sometimes behave as though those things matter – and they almost always behave as they always have.
So as the year winds down and the screens glow a little greener, Dollar Bill will raise a glass to the technicians, the fundamentalists and even the would-be astrologers.
To the Santa rally, long may it live and here’s cheers to all, including the disbelievers.
Is your ASX-listed company doing something interesting? Contact: mattbirney@bullsnbears.com.au
