14
SHORT S&P INTO EARLY JANUARY STRENGTH
Last year we first introduced two new products to the Commodity Traders Almanac: the
30-year Treasury bond and the S&P 500 stock index futures contracts. The S&P’s were first
launched in mid-1982 at the Chicago Mercantile Exchange and have been the premier
equity futures contract since. Traders have electronic access to trade what is known as the
E-mini S&P 500 contracts (ES), which is the most popular and highly liquid of all the stock
index futures contracts. Since we have such vast research capacity for the overall markets,
and since there tends to be a strong seasonal correlation with the overall stock market, we
want to explore a seasonal opportunity to start the year off.
Typically the stock market has demonstrated a tendency to retreat after the first of the new
year, especially when there has been a strong
fourth quarter gain. Once the new year begins,
we often see a profit taking correction. The
premise for this occurrence is based on the fact
that investors tend to sell stocks to lock in profits
in order to defer taxes from capital gains after the
new year begins. Even though the best time to be
long, the overall equity markets lasts from October
through late April, this January break can cer tainly
give short term traders a nice return. The last three
years have given above average returns. In fact,
the two highest historical returns on this trade
occurred in 2008 and in 2009.
Selling on or about the second trading day of
the New Year and holding for twelve trading ses -
sions has provided a spectacular cumulative gain,
since 1983, of $86,300. This trade has worked 16
out of the last 28 years, for a success rate of 57.1%.
The graph below is a weekly continuous futures
chart of the “big” S&P 500 contract with the
E-mini overlaid; the seasonal chart in the bottom
section, showing last year’s price move with the
typical historic price moves, clearly defines the
January break. Just remember whatever goes up
does not always come down, but the odds do
favor a January break after a significant fourth
quarter rally. See pages 133–138 for additional
correlated trades.
ENTRY EXIT PROFIT/
YEAR DATE CLOSE DATE CLOSE LOSS
1983 1/4 142.50 1/20 147.65 $1,288
1984 1/4 168.90 1/20 168.05 212
1985 1/3 167.05 1/21 177.65
2,650
1986 1/3 212.95 1/21 205.55 1,850
1987 1/5 253.25 1/21 268.90
3,912
1988 1/5 259.80 1/21 244.60 3,800
1989 1/4 282.90 1/20 288.75
–1,463
1990 1/3 361.70 1/19 342.20 4,875
1991 1/3 324.15 1/21 332.95
–2,200
1992 1/3 420.25 1/21 414.45 1,450
1993 1/5 434.60 1/21 436.30
–425
1994 1/4 467.50 1/20 475.30 –1,950
1995 1/4 463.75 1/20 467.30 –888
1996 1/3 626.95 1/19 614.15 3,200
1997 1/3 757.20 1/21 786.95
–7,438
1998 1/5 986.90 1/22 966.30 5,150
1999 1/5 1253.20 1/22 1232.00 5,300
2000 1/4 1411.80 1/21 1453.70
10,475
2001 1/3 1359.20 1/22 1358.50 175
2002 1/3 1166.40 1/22 1121.30 11,275
2003 1/3 909.90 1/22 877.50 8,100
2004 1/5 1120.00 1/22 1144.00
6,000
2005 1/4 1191.00 1/21 1168.60 5,600
2006 1/4 1280.50 1/23 1269.20 2,825
2007 1/4 1427.50 1/23 1435.40
$1,975
2008 1/3 1458.70 1/22 1309.30 37,350
2009 1/5 927.40 1/22 825.50 25,475
2010 1/5 1132.30 1/22 1091.00 10,325
28-Year Gain $86,300
JANUARY SHORT S&P MARCH (MARCH)
TRADING DAY: 2HOLD: 12 DAYS
Chart courtesy TradeNavigator.com
S&P 500 (SP) BARS AND E-MINI S&P 500 (ES) CLOSES
(WEEKLY DATA JANUARY 2009–MAY 2010)
S&P Seasonal Pattern since 1982
c01_CTA_2011_pgs_12-119_c01_cta_2011_pgs_12-119 7/21/10 2:02 PM Page 14
MONDAY
3
TUESDAY
4
WEDNESDAY
5
THURSDAY
6
FRIDAY
7
SATURDAY
8
SUNDAY
9
JANUARY
We were fairly arrogant, until we realized the Japanese were selling quality products for what it cost us to make them.
— Paul A. Allaire (Former Chairman of Xerox)
It is better to be out wishing you were in, than in wishing you were out.
Albert W. Thomas (Trader, investor, Over My Shoulder, mutualfundmagic.com,
If It Doesn’t Go Up, Don’t Buy It!, b. 1927)
Every man is the architect of his own fortune. Appius Claudius (Roman politician, 340–273
B.C.)
Resentment is like taking poison and waiting for the other person to die.
— Malachy McCourt (A Monk Swimming: A Memoir)
The four most expensive words in the English language, This time it’s different.
— Sir John Templeton (Founder, Templeton Funds, philanthropist, 1912–2008)
End Long Euro(H) (Oct. 26, 2010)
Start Short S&P 500(H)—57.1% Accuracy Since 1983—End Jan. 21—Page 14
Start Short Euro(H)—91.7% Accuracy Since 1999—End Feb. 9—Page 16
Start Short Wheat(N)—68.3% Accuracy Since 1970—End May 9—Page 18
End Long Wheat(K) (Dec. 7, 2010)
c01_CTA_2011_pgs_12-119_c01_cta_2011_pgs_12-119 7/21/10 2:02 PM Page 15

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