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6 reasons stocks will get a Santa Claus rally

Stocks appear poised to end a rocky November in strong fashion, setting them up for their traditional Santa Claus rally into the new year, says Jeffrey Saut, chief investment strategist at Raymond James, the St. Petersburg, Fla., financial services firm.

December is historically one of the best months for stocks to begin with, Saut notes, and given the improvement in both the market's technicals and fundamentals, equities should end the year with solid gains.

"My sense is that the November [market] weakness has burned itself out and consequently I look for a continuation of the traditional year-end rally that began on our 'buy 'em' call of Oct. 4," Saut writes in his weekly note to clients.

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Stock market looks set for a Santa Claus rally

The strategist highlights six technical, fundamental and macroeconomic forces that will give equity investors some happy holiday returns:

1. Trading volume has contracted so sharply "it reveals the public is g-o-n-e from the investing scene," Saut says, which is a bullish indicator for stocks.

2. The economy is not slipping into recession, with Raymond James' recession indicator, putting the odds of another recession at 11 percent -- down from 35 percent in September.

3. The sovereign debt crisis in the eurozone will be resolved, as "Germany and France are rumored to be exploring 'radical' methods to solve Euroquake," Saut notes.

4. Corporate earnings will continue to come in better than Wall Street forecasts, like they did in the third quarter of 2010.

5. The most recent reduction in real GDP was due to inventory adjustments that should actually boost growth in the fourth quarter of 2011, Saut writes.

6. Domestic final sales accelerated to 3.1 percent in the third quarter from 1.4 percent, and 0.4 percent in the previous two quarters.

Saut says that's only the beginning of his bullish case for stocks, "despite all of the negative nabobs rants." For what it's worth, the strategist's early October "buy" call has so far been spot on. Since Oct. 4, the Dow is up 7.2 percent, the S&P 500 has gained 7 percent and the Nasdaq Composite is up 5.2 percent.

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