Santa Claus Rally? Machines Render Old Stock Market Adages Worthless

This time of year we like to toss around sayings that supposedly explain how the markets are going to roll.

The Santa Claus Rally: a seasonally bullish period, usually in the last week of December.

The January Effect: the belief that stocks will rise during the first month of the year, particularly during the first five trading days.

These sayings used to work well when humans were in charge of price discovery. Today that isn't always the case.

The rise of algorithms, artificial intelligence, high-frequency trading and word triggers seem to be the dominant force in markets. Those old phrases and timeframes don't carry as much importance these days.

Machines don't look at the calendar and decide which direction to move. Instead, they often clue in on words and hit the markets quickly with buy and sell orders, regardless of the day, week or month.

It's a strange situation and one that is difficult to adapt to. Still, we must roll forward and change with the times.

Oh, I'm sure we will all enjoy the holidays barring any bad news or tragedies. Indeed, there have been enough this year to fill a complete decade, so some quiet and calmness would be welcome.

But the machines will still be on, and we must study which way those winds are blowing so we can take advantage and be on the right side of the trade.

This commentary is an excerpt from the Trifecta Stocks Roundup, a weekly feature sent to subscribers of Trifecta Stocks. Click here to learn more about this portfolio, trading ideas and market commentary product.

-- Bob Lang and Chris Versace are co-portfolio managers of Trifecta Stocks.