As the end of 2009, and the end of the decade draws to a conclusion, we wonder if the traders and the accountants might not be trading desks. Why keep positions open, subject to "mark to market" tax liabilities when you have only marginal conviction about the market's direction? There is nothing worse than having a market close out of line in your favor of the years last trading day. When the market closes back in line, after Jan 1st, you are then required to pay taxes based on the out of line close, on money that you never made. There may be some accounting reasons for year end volatility that is not readily apparent.
The calendar of fundamental news is sparse this week. In the US this morning we did have two reports, the S & P composite housing price index, and the CB Consumer Confidence report. Both numbers came in a little poorer than expected. Reports for the balance of the week will probably not be market movers, so we may have to depend on position squaring to shake up the market.
When analyzing the weekly Commitment of Traders report, it was amazing how quickly the huge dollar short position was liquidated. The report released yesterday for data as of 12- 22 2009 showed the net long some else and short the dollar position was down to 37,881 futures contracts. This is a reduction from 270,220 contracts at the beginning of December. The long speculative position in the dollar index has grown from 4,171 contracts to 36,171 in the same period. These numbers are taken from the long form in the COT report which includes the delta adjusted consolidation of the option positions.
Quickly, during the month of December the Euro gave back the gains of the previous three months. During September through November the Euro clawed steadily upward to the highs a little above the 1.51 handle. A quick retreat from the highs is typical action for many markets. Most, but not all, markets go down faster than they go up. Yes, the psychology of a market changes quickly, but remember it can change more than once. We prefer to test the long side of the Euro if the holiday doldrums takes us below the 1.43 level.