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Market timer: Here comes small cap Santa rally

Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

Editor's Note: Jeffrey A. Hirsch is editor-in-chief of the "Stock Trader's Almanac," which popularized the "sell in May" market strategy.

This month felt more like an October than a typical December due to market volatility.

The CBOE Volatility index, spiked as high as 27 on Dec. 14. The S&P 500 had its second worst weekly loss and the Russell 2000 small-cap index had its worst week of 2015 last week, off 5.1 percent.

We suspect much of the first half of December weakness was the result of heavier than usual tax-loss selling pressure and Fed rate jitters. Energy stocks and crude oil had another tough year and were among last week's biggest losers. High-yield bonds, many of which are linked to energy, also had a challenging year and were aggressively sold.

The pace and magnitude of early December declines are greater than the historical norm, but that sets us up for a year-end bounce of greater magnitude.

Here is why ... and it's called my "Free Lunch" strategy.