Year End Momentum Moves
The last week of the year has traditionally been one of my best trading weeks of the year and it looks like this year will be no exception. There are many participants who will tell you they don’t trade the final week of the year because of low volume, but they are missing the real action in many individual stocks. My opinion is that the low volume makes it easier to make money. Momentum goes unchecked by the “junior traders” manning the trade desks, this represents a lack of supply which might typically find its way to the market. Less supply is also influenced by tax related selling usually completed by now and a reluctance to lock in profits and create a tax obligation for 2007. Instead many participants wait until next year to sell winning positions and defer their taxes due for another year. Tax deferral creates a lack of supply which further exaggerates the year end upside in momentum names. From the demand perspective, the market participants who are still trading can be aggressive buyers as they force prices higher in hopes of padding their year end numbers for their annual trading bonus. The momentum names can also benefit from a “reverse tax loss” move from short sellers who may eliminate their losers by buying back shares they sold at lower levels. The headlines may say “low volume”, but only price pays!