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Buying stocks now: The world’s easiest trade?

The world's easiest trade?
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The world's easiest trade?

It appears to be the world's easiest trade: Taking a bullish position on stocks for the year's last five trading sessions. Over the entire history of the , not only has the index tended to rise over the last days of a year, but it has tended to do so with greater consistency.

Going back to 1928, the S&P 500 has returned 0.14 percent in the average five-day period. But in the last five days of the year, the S&P has enjoyed an average return of 1.19 percent, according to Carter Worth, Sterne Agee's chief market technician. (Technically, the S&P 500 wasn't created until 1957, but historical data from the earlier 90-stock S&P index is used to extrapolate earlier S&P 500 performance.)

And while the standard deviation of the S&P's average five-day return is 2.64 percent, the standard deviation around the average gain in the waning days of the year is only 1.87 percent, Worth found. That tells us that we can expect less variation around the average—which is logical, since light trading is to be expected.

Worth has generally maintained a bearish outlook on the overall market. But when it comes to the last few days of the year, "the odds are high that they play out well," he said in a recent note to clients. "There is not only a higher-than-average return over the last five days, but there is less variability around the average."

Read More Next up: 2,100 on the S&P 500

So will the last five trading days of 2014, which begin with Wednesday's short session, bring the expected holiday cheer?

Traders on the floor of the New York Stock Exchange.
Getty Images

Knowing the actual answer is obviously impossible. But traders maintain that in addition to the historical record, there is something else working for the market in the waning days of 2014: momentum.

Stocks have capped off a good year by showing great strength over the past week, taking the S&P 500 to a fresh all-time high. And that could set us up for a repeat of 2013, when the market capped a banner year with an additional gain of more than 1 percent over the last five sessions.

"I think the momentum does carry us forward, and I'm not going to buck the trend of what's been happening over the last few years toward the end of the year," said Anthony Grisanti, president of GRZ Energy.

Even though Grisanti has a cautious outlook when it comes to stocks, he concedes that "everything is setting up for us to have a little bit of a rally toward the end of the year."

To capitalize on such a move, Scott Nations of NationsShares recommends buying the March S&P e-mini futures contract at 2,077, with a target 10 ticks higher at 2,087. But Nations still warns about the heady promise of easy money.

"Nothing is easy," the Chicago-based trader said. "As we like to say down here, 'If it were easy, then everybody with a pencil and a weird-colored jacket would be a millionaire.'"


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