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Shorts

Monday evening it was 62 degrees at 5:00 pm when I was driving home. Tuesday morning it was 31 degrees at 6:00 am when I headed out for the office.

Now that it is December, I guess summer is over and it is time put away the shorts.

Market traders also tend to put away their shorts in December. In trading terms, a short position is only profitable when an asset declines in value. Traders use “shorts” to profit from assets they believe are overvalued.

From a trader’s perspective, the highest profit is gained when a short goes to $0. Conversely, if a “short” rises rapidly in value a trader can lose their shirt.

If a trader’s short loses their shirt things can get cold in a hurry, and December tends to be a pretty rough month for traders’ shorts.

According to LPL Research, the S&P 500 Index has been positive 74.6% of Decembers since 1950. Additionally, since 1950 December has never been the worst month of a calendar year for the S&P 500 Index.

With stocks historically heading up in December, shorts have a tendency to go down. As always, past history has no bearing on this December or on individual stock positions, so shorts still could be fashionable this year.

For now traders holding shorts are likely panic-stricken as our proprietary Market Mood Meter® has moved to Euphoric. Both Trend and Momentum strengths are at 100% (48 out of 48), and volatility has fallen over the last three trading days.

Securities offered through LPL Financial. Member FINRA/SIPC. Financial advice offered through Investors Advisory Group, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.

The S&P 500 is an unmanaged index of 500 U.S. large cap stocks. One cannot invest directly in an index.

Past performance is no guarantee of future performance. In fact, the opposite can be true. The information contained in this report does not purport to be a complete description of the securities, markets, or development referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.

Market Mood Meter© Trend strength is determined using S&P 500 Index daily moving averages (DMAs) (8-21, 13-34, 21-55, 34-89, 55-144 and 89-233) to determine whether the short-term DMA value is higher than the longer-term DMA value. A daily moving average is the average price of the index over the indicated number of days. Trend is either Positive (8 points) if the short-term DMA is higher, Negative (0 points) if the short-term DMA is lower or Transitioning (4 points). A trend is Transitioning if the difference between the shorter DMA and longer DMA is between -.34% and +.34% of the shorter DMA. Maximum is 48 points when all trends are Positive.

Market Mood Meter© Momentum strength is determined using the same S&P 500 Index DMAs to determine whether trends are getting stronger or weaker calculated by dividing the difference between the shorter DMA and longer DMA by the shorter DMA. Momentum must be directional – rising or falling -- for 5 consecutive trading days to be Gaining (8 points) or Losing (0 points), otherwise momentum is considered Transitioning (4 points). Maximum is 48 points when all momentum is Positive.

 

Posted on: 2017-12-06 09:53:38


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