Commodity Trader's Almanac 2O11

14

SHORT S&P INTO EARLY JANUARY STRENGTH

Last year we first introduced two new products to the Commodity Trader’s 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 ...