Every year I plan a Santa trade based on the idea that many investors engage in tax loss selling and many mutual funds want to get poor performing stocks out of their portfolio before year end. This drives the stocks well below fair value – and when the selling is exhausted, a relatively small amount of buying can cause a pop up in late December and early January. Tends to work best with small caps and every year the set up is a little different.

This year's setup is more complex than usual. Venture and the gold stocks had a 3rd consecutive down year – so tax loss selling should be minimal (few investors in these sectors would have profits to cancel with tax losses). But a lot of investors in PMs - especially funds would not want these in the portfolio at the end of the year. I think they have mostly been dumped already and there are signs that a significant intermediate term bottom is forming in these stocks. Venture has not yet violated its summer low, and it traditionally bounces after mid-Dec. Gold stocks have lost more than 50% this year – in all likelihood well overdone. The metals look like they are trying to form a double bottom.

All this while US markets had a great year. Normally with this setup, I would concentrate on US markets for my Santa trade – and I plan on doing some of that, but I've decided to include a lot of PM stocks as well, so this year I'm doing kind of a hybrid Santa trade.This week I'll be buying small but highly liquid names, favouring silver miners – if PMs do move up, silver should lead. If this doesn't work, it would be a very bad sign for PMs and I'll give up on the trade.