Commodity Trader's Almanac 2O11

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

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