94
TWO-MONTH YEAR-END EURO RALLY
Here is one of our best foreign currency (FX) plays. We had a hard time deciding whether
or not share it. The euro is weak in the beginning of October and then, towards the end of
the month, begins a seasonally strong period. Since it is a trade phenomenon that has been
shared at several conferences in the past, after long discussions, we decided to add the
trade in last year’s edition. This of course jinxed the trade.
In the short history of the euro currency, the
market seems to make a bottom around the third
week of October; then we see a tendency to make
a price gain against the U.S. dollar by year’s end.
Many factors could be at play to explain this,
such as multi-conglomerate U.S. corporations’
need to make fiscal year-end book adjustments
as well as to make foreign payroll and bonuses.
The trade itself begins by going long on
or about October 26 and holding until about
January 4. Due to the expiration of the December
futures contract, we ran the statistics using the
March futures contract. Overall we have a stellar
72.7% success rate with 8 wins and 3 losses. The
best win was in 2000 with a whopping $14,813
gain. In 2009, the euro had been rallying since the stock market lows in March. Even a
cursory look at the chart would have kept traders out of this trade last year.
Traders can use the spot FX markets, which would eliminate the need to buy a
far out futures contract month. Stock traders can look at the exchange-traded fund,
CurrencyShares Euro (FXE), or trade options on this instrument. In addition, the
Inter national Securities Exchange has a Euro Currency Index quoted in dollars per euro,
symbol (EUI). It is accessible through your stock options broker; it is an exchange-listed
security and is cash-settled in U.S. dollars with a European style exercise. See pages
133–138 for additional correlated trades.
ENTRY EXIT PROFIT/
YEAR DATE CLOSE DATE CLOSE LOSS
1999 10/28 106.22 1/6 103.49 $3,413
2000 10/26 83.39 1/4 95.24 14,813
2001 10/24 88.92 1/3 89.74 1,025
2002 10/25 97.15 1/6 104.42 9,087
2003 10/27 116.98 1/6 127.37 12,988
2004 10/27 127.05 1/5 132.74 7,113
2005 10/27 122.35 1/6 122.03
400
2006 10/26 127.78 1/4 131.31 4,413
2007 10/25 143.37 1/4 147.77 5,500
2008 10/27 125.23 1/5 135.73 13,125
2009 10/26 148.50 1/4 144.10
5,500
11-Year Gain $58,750
OCTOBER LONG EURO (MARCH)
TRADING DAY: 18—HOLD: 47 DAYS
Chart courtesy TradeNavigator.com
EURO (WU) BARS AND CURRENCYSHARES EURO (FXE) CLOSES
(WEEKLY DATA JANUARY 2009–MAY 2010)
Euro Seasonal Pattern since 1999
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MONDAY
10
TUESDAY
11
WEDNESDAY
12
THURSDAY
13
FRIDAY
14
SATURDAY
15
SUNDAY
16
Financial markets will find and exploit hidden flaws, particularly in untested new innovations—
and do so at a time that will inflict the most damage to the most people.
— Raymond F. DeVoe Jr. (Market strategist, Jesup & Lamont, The DeVoe Report, 3/30/07)
When you’re one step ahead of the crowd you’re a genius. W hen you’re two steps ahead, you’re a crackpot.
— Shlomo Riskin (Rabbi, author, b. 1940)
Brilliant men are often strikingly ineffectual; they fail to realize that the brilliant insight is not by itself
achievement. They never have learned that insights become effectiveness only through hard systematic work.
— Peter Drucker (Austria-born pioneer management theorist, 1909–2005)
No other country can substitute for the U.S. The U.S. is still No. 1 in military, No. 1 in economy,
No. 1 in promoting human rights and No. 1 in idealism. Only the U.S. can lead the world. No other country can.
— Senior Korean official (to Thomas L. Friedman NY Times Foreign Affairs columnist, 2/25/2009)
End Long Swiss Franc(Z) (Aug. 8)
Don’t be scared to take big steps—you can’t cross a chasm in two small jumps.
— David Lloyd George (British prime minister, 1916–1922)
Columbus Day (Bond Market Closed)
FN:
LC(V)
LT:
LH(V)
OE:
LH(V)
OCTOBER
c01_CTA_2011_pgs_12-119_c01_cta_2011_pgs_12-119 7/21/10 2:03 PM Page 95

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