Trader’s Narrative

As this annus horribilis draws to a close, we are left ducking shoe after shoe that drops or is flung at us. But this year’s abysmal performance has a silver lining. It offers a sumptuous buffet for those who finish off the year with a play on the January effect.

For the novice, this is the trading pattern at the end of the year which the efficient market hypothesis says shouldn’t even exist. Usually it is small or micro capitalization stocks which have declined and are then pushed down further by tax-loss selling. The opportunity is to play these for a short term bounce into the new year.

Personally, I focus on closed end funds (CEFs) and within them usually fixed income or municipal bond CEFs. I go into great detail explaining the background, rationale and several actual trades: My Year End Strategy

I won’t repeat myself because you can get all the info you need from the above link. This is a very high return, high probability trade but it depends on how poorly the target securities have fared.

This year, I feel like a kid in a candy store. While this abundance is great, it does make it a bit more challenging to filter all the potential plays and find the best ones.

You can sift through the CEFs through a publication like Barron’s which not only prints their prices but also their year to date performance and premium/discount to NAV. Online you can use the CEF Association’s database or check out ETF Connect and use their Fund Sorter or do an advanced search to only look at certain sub-sections of securities like municipal bond fund CEFs.

Here’s an example of the sort of securities to choose from:

Continue reading ‘How To Play The January Effect This Year With CEFs’

Well, it is the end of another year. And if you are a trader, your thoughts turn invariably to the January effect and more specifically, how you can use this phenomenal annual pattern to generate alpha.

There are a few ways to take advantage of the January effect. My personal favourite is on closed-end funds (CEFs). I’ve outlined the whole trading plan here: My Year-End Strategy.

With the turmoil in the bond market this year, a lot of bond funds and other “yield” vehicles have gotten beaten to a pulp. Which means there are a lot of unhappy longs who are selling for tax-loss year end reasons.

I feel like a kid in a candy store this year.

I’ll just feature one example: BlackRock Municipal Bond Fund (BBK), but for a vowel, my namesake. Almost everyone who bought this this year is facing losses:

Notice the upsurge in volume - a telltale sign. And the way it has fallen to technical support at $14.

Hope you had a great year, and see you in 2008